- What lies ahead for the EU-Mercosur agreement? - July 26, 2024
- Argentina’s Lithium Industry: Reforms and Radical Rhetoric - May 8, 2024
The lithium industry in Argentina has long thrived on pro-market policies and regulatory frameworks, making it the most attractive destination market for mining investments in South America. The radical wave of ultraliberalism embodied by President Javier Milei could boost this groundwork, at least say the supporters. The Necessity and Urgency Decree (DNU 70/2023) signed by Milei on December 2023 is a first sign of his radical plans to rebuild Argentina under the principle of deregulation. It also represents a broader geopolitical realignment towards the U.S.
In 2022, Argentina’s lithium industry experienced a growth of exports of 234% compared to 2021, in line with the general increase of lithium global demand for the energy sector. The country is also set to surpass Chile as the second largest global lithium producer by 2027. With such a promising outlook, how will the political shift in the country impact the national lithium industry? Despite the youth of the newly elected administration, the first measures taken at the domestic level and an overview of foreign policy power relations can help in understanding such an impact.
Milei’s Recipe to Heal Argentina
Twenty years have passed since the progressive centre-leftist government of President Néstor Kirchner took over Argentina, making it part of the Pink Tide in the region. But the results of the last presidential elections showed a reality that couldn’t be more different. Since 2018, the victory of leftist parties and coalitions in countries including Mexico, Colombia, and Brazil, sparked intrigue about the potential of another, yet softer, Pink Tide. But the electoral results in Argentina went in the opposite direction. Ultraliberal economist Javier Milei and his coalition La Libertad Avanza overtook Peronist candidate Sergio Massa and his coalition Unión por la Patria, winning the presidential elections.
From an economic perspective, the main goal is to reduce the role of the State as a regulator within the economy, benefitting the private market its actors. This would mean measures such as the removal of existing restrictions to the free movement of capital and into the privatisation of state-owned enterprises. The decree Milei signed in December sparked a fierce debate within the country. Although its future validity depends on Congress, it arguably represents a programmatic document outlining the essence of Milei’s reforms. Thus producing consequences for the country’s leading sectors, such as the lithium industry.
Towards the Heyday of Argentina’s White Gold
With electrification increasing in the mobility sector and the uptake of renewable energies, raw materials have become increasingly critical to fuel the energy transition process. Among these, lithium has experienced an extraordinary growth, as it is an essential component of batteries for EVs and energy storage. This has resulted in a global race to gain ground in its supply chains and market, in which only few large corporations hold the reins. As such, Argentina has considerably grown its lithium capacity, ranking fourth among the largest lithium producers and third among the largest refining countries. At the regional level, it is the second largest lithium producer behind Chile.
Within the so-called “Lithium triangle”, Argentina is believed to have the most promising growth prospects compared to neighbouring Chile and Bolivia. Various factors explain its competitive advantage. First, it never declared lithium as a strategic national resource, which has avoided imposing restrictions on the foreign mining companies operating in the national territory to extract the mineral. Second, since the 1990s, federal governments supported the industry with incentives and regulatory frameworks that favoured and attracted corporations. Despite an 8% tax on mining exports, corporations benefit from locked tax rates in the long run and an overall limited tax imposition, which enables them to keep around two thirds of the profits gained.
Mineral resources in Argentina are owned by Provincial governments whenever found under their jurisdiction. Federal law dictate the pillars and principles of the normative framework around mineral reserves’ exploration and exploitation. While the responsibility to implement the administrative procedures for concessions and environmental requirements lays on Provinces. Once corporations obtain a concession, they have no obligation to process the lithium extracted before exporting it, which explains the larger exploitation capacity compared to the country’s processing capacity. In 2022, the most relevant export markets for Argentina’s lithium were China (41.5%), Japan (30.7%), South Korea (12.8%) and the U.S. (9%).
The widespread deregulation planned under Milei’s administration may enhance the mining-friendly environment by curbing red-tape, lifting taxes on exports and potentially allowing foreign investors to acquire land in the country. Since 2011, the Ley de Tierras (L. 26.737) has limited foreign acquisitions of Argentine soil of up to 15% of the total territory of the country, a province or a municipality. Although past administrations progressively downsized its original restrictive scope, Milei is considering derogating this law.
According to several civil society associations and provincial governors, Milei’s plans threaten to sell the country to foreign investors without generating a sustainable development for the local population, especially indigenous communities. Such a scenario might expose northern provinces such as Salta, Catamarca and Jujuy, where lithium reserves are concentrated, to an even fiercer race to obtain land parcels. This could give corporations more bargaining power with provincial authorities on concessions and potentially on environmental requirements.
Repurposing Foreign Policy: Rhetoric or Reality?
Albeit treated as a side issue during the electoral campaign, Milei’s approach to foreign policy has been to pledge a geopolitical realignment towards the U.S. and the liberal world. Yet, since his election, there has been a tacit shift in favour of a more pragmatic approach. Milei’s geopolitical ambitions represent a turning point compared to the consolidation of Sino-Argentine relations in the past progressive administrations. Such ambition translates into the defence of liberal democracies, in particular the U.S. and Israel, and the promotion of free trade.
Yet, reality might be the greatest obstacle for such plans. China is one of the top players in the Argentine mining sector, with growing investments and numerous projects underway for raw materials exploration and infrastructure development. China is also the top export country for Argentine lithium, absorbing 41.5%. What’s more, it is the largest creditor through its infrastructure and energy investments and the currency swap line, helping Argentine governments ensure compliance with IMF debt payments.
Considering such dependence and its precarious socio-economic situation, a radical change of approach towards China would not be wise. Yet, this does not mean that change must be avoided. Argentina’s promising lithium outlook and the deregulation-driven political agenda suggest competition in the sector might heighten and attract new investors.
A market-centred approach could increase private actor power and set a pragmatic tone within foreign relations, regardless of the Milei’s radical rhetoric. A U.S. realignment could prove mutually strategic. Argentina’s lithium capacity is set to grow and the U.S. aim to secure supply chains of critical raw materials, decreasing Chinese import dependence. The U.S. critical raw materials strategy would, in principle, include greater attention to sustainable practices and environmental impact. This is an approach not prioritised by Chinese corporations.
Overall, the extent to which Milei’s rhetoric and radical electoral campaign promises will survive reality remains unknown. His minor representation in Congress and tensions with Provincial authorities’ mining interests could hinder the administration’s programme. Moreover, the persistent economic and financial instability in the country will likely give the largest reality check to Milei’s radical ambitions.
- How will political tensions between Milei’s administration and Congress influence the success of the radical political agenda?
- How will provincial authorities handle the growing role and power of mining corporations vis-à-vis promises of deregulation?
- What will be the consequences of deregulation on the socio-economic and environmental sustainability of the lithium mining sector in Argentina?
Suggested readings
“Argentina, el abismo permanente”, Nueva Sociedad, no. 308, November – December 2023.
First 100 days: Milei falters on shock therapy for Argentina’s economy, Al Jazeera, 19 March 2023.
