Resource Nationalism and DecarbonizationComments Off on Resource Nationalism and Decarbonization
Across Latin America, a string of recent left-wing electoral victories has drawn comparisons to “Pink Tide” of the early 2000s. The Pink Tide took place in the context of a global commodities boom. The current moment, however, coincides with a global push towards decarbonization, and much of the world’s supply of commodities essential to that transition—most prominently lithium—are found in the region. How will these new left governments navigate this frontier of resource extraction?
Already, President López Obrador nationalized Mexico’s lithium supply in April; Colombian President-elect Gustavo Petro recently declared an anti-fracking stance while supporting boosted investment in a green transition. Heated debates have emerged regarding the role of state in resource development, the use of resource revenues in national development strategy, and the environmental and social harms of mining for frontline communities, especially Afro and indigenous groups.
In July, a Phenomenal World panel discussed these ongoing debates, probing the current and future status of resource nationalism from Mexico to the Southern cone. A recording of the event can be seen here. The transcript was edited for length and clarity.
A conversation on resource nationalism in Latin America
ALEX YABLON: As the global push to decarbonize accelerates, however haltingly, there’s mounting pressure on countries that produce an outsized share of the commodities essential to that transformation. In Latin America, growing demand for metals like lithium and copper has simultaneously increased the ambition of the new generation of left-wing political leaders eager to assert sovereignty over natural resources, while dividing the same politicians’ own coalitions over how to balance economic development with local environmental protection. Recently, Chile’s world-leading copper industry was rocked by a strike after left-wing President Gabriel Boric announced he was shutting down the state-owned smelter over emissions concerns. Resource nationalism has also introduced geopolitical quandaries: it has made Latin America a center of competition between China and the United States. In Mexico, President Andres Manuel López Obrador has had to walk back a bold declaration on nationalizing the country’s lithium deposits after running into conflicts with Chinese mining firms who already secured lithium concessions.
Resource nationalism in Latin America is nothing new; there’s a long history of state involvement in mining and energy. What’s different about this wave of decarbonization?
Miguel Angel Marmolejo Cervantes: This wave is driven by the energy transition. In Mexico, we’re seeing a new wave of announcements and energy around nationalization, largely comprising old practices. The current proposal is an increased role for the state, and a lesser role of the market, with no checks and balances.
THEA RIOFRANCOS: I want to talk about what’s different about resource nationalism in the present moment versus the classic moment of the early to mid twentieth century. Looking at Cardenas and oil in Mexico, or Allende and copper in Chile, these classic nationalizations did expropriate resources. They took assets out of the hands of capitalists, in some cases forcing foreign capitalists to leave the country. There was capital flight, a real transfer of assets from the private to public sector, and at times deep reorganizations of the sector to serve goals apart from profit accumulation. In comparison to today’s agenda, this is both a “classic” but also more radical form of resource nationalism.
We can broaden it beyond decarbonization because some of what I’m saying pertains to the fossil-fuel sector in the Global South. First of all, we’ve seen less of the classic form of expropriation, and more actions like forced renegotiations of contracts, majority stakes for the state, and joint ventures. In the current moment, the state is more collaborative with foreign or multinational capital, even if it’s coming from a position of strength. It doesn’t generally exclude private ownership, but aims to put the state in the driver’s seat. In some cases, there isn’t much private capital at all, and we see the state taking charge in new sectors. But despite the rhetoric, the aim is to attract private investment.
Another new development is that state-owned firms and resource sectors—mining or fossil fuels—are more isomorphic with multinationals. They look similar, they have similar governance structures. That again is another way in which nationalization is less radical than in the past.
In the lithium sector, there are different roles being envisioned for a state firm outside of exploration and ownership. These include research and development, upgrading, and value-chain coordination. The goal is to put the state in a key coordination role along with existing or new private investment to orient the sector towards, variously, increasing the societal take, the value-added, or spurring the energy transition. Whatever the goal is, the state’s role in coordination is different from the classic “digging in the ground” image of resource nationalism.
Martín Obaya: In general, we think of nationalization as greater involvement of the state, but as Thea said, the state can intervene in many different ways. There are different strategies involving lithium in the region. On the one extreme, you have a more classical example of nationalization in Bolivia: the state owns the resource and a public firm has the monopoly of exploitation. On the other extreme, you have Argentina: it’s market-led, and the only push towards nationalization is public oil company YPF saying they want to step into the lithium business. A more intermediate experience is that of Chile. We’ll see what will happen, but my feeling is that Chile’s intention to build a public lithium company will be more along the lines of creating a company that can form joint ventures with a private firm in order to have more control of the resource. But the starting point is that they don’t have the resources to do it by themselves.
This new wave of decarbonization-induced resource nationalism provides states with new narratives. In Argentina, one narrative is that we are the protagonists of the energy transition as suppliers of raw materials, so we have to supply these materials as quickly—before our window of opportunity closes. There’s a narrative that the energy transition is unfair, because it benefits countries from the North, so a country like Argentina should claim strategic control of necessary resources. Then yet another narrative is that resource extraction alone is not enough. If we have lithium, we have to industrialize it, and we should directly produce batteries.
These are the narratives of nationalization within the frame of the energy transition. As Miguel Angel suggested before, is this not old wine in new bottles? In the end, we’re discussing what the role of natural resources is in the strategy of economic development. But we’ve had the essence of this discussion for the last seventy years.
AY: What is that old wine? What have traditionally been the pitfalls of resource nationalism as the engine of national economic development? Where has it made good on its promise and where has it fallen short?
MO: When I say old wine, I mean first the role of national resources in the strategy of economic development, and then the role of the state in that particular strategy. There’s the case of Codelco in copper, a national champion of Chile, where a state-owned company producing natural resources contributed to development, at least in macroeconomic terms, and provided foreign resources to a country. In the case of Argentina, the experience is more modest. The oil company did contribute to the development of oil resources in the past, but then it was privatized before being nationalized again, and contributed to the development of nonconventional sources. The experience is mixed and depends on each country.
MAMC: To me, one old practice or framework is the idea that the state as an entity should be present all the time. But it could refer to extractivism. Extractivism as a concept has evolved over time. Following on from Thea’s work, I wrote an article with Rafael Garduño-Rivero that asked whether extractivism with regard to lithium was hard or soft nationalization. Hard nationalization, to us, is just the state, and soft nationalization is half the state, half private investors. We have a mixed economy, where you have to let the investors play around and develop their expertise, especially around technology. Old practices mean extractivism, but these could evolve.
TR: I’m glad that Miguel used the term extractivism, which is a contested term and carries its own critique of state-led resource development. There’s an environmental, social, and indigenous justice critique of any type of resource development, whether public or private. But to stay with the macroeconomic question, we can ask: how much has resource development contributed to the overall economic revenues of the state, and what have those revenues been reinvested in? Has it contributed to developmental indicators through reinvestment in social and public services, or job growth? Has state ownership contributed to economic diversification and upgrading? The record is mixed on all fronts, which doesn’t just point to the errors of state ownership, but also the constraints of the global economic order.
There is a position of dependency on foreign capital which constrains state action. But even with this caveat, the most recent nationalizations—not “hard” nationalizations at all—did see a big boon to state finances through the forced renegotiation of contracts, majority stakes, and joint ventures. In many cases, those were invested in ways that met human needs. Putting aside corruption and mismanagement, the overall picture is that many were lifted out of poverty, and much of that was due to resource rents—in my view, that’s a success.
There was a failure in limited diversification and limited value added. Many petrostates don’t have refineries, so there’s no value adding in the supply chain, let alone diversification. So the fundamental dependency on the overall market structure persists, even if there’s less dependency on immediate foreign capital. The volatility of these commodity markets affects that fiscal basis of the state in a very deep way. The closer you tie the fiscal basis to volatile markets, the more you are at a loss when there’s a commodity bust, and then you are forced to implement austerity.
MAMC: Pemex resulted from a nationalist policy, and now lithium is next. There’s been successful national development, but crises in governance—corruption, international trading, and debt burdens—compel governments to find and coexist with market solutions. We are at a turning point right now, especially with lithium. In Mexico, there will be a state company, but it’s yet to be incorporated. President López Obrador amended the mining law and it was approved by Congress, and now they have 90 days. But we still don’t know if this is the path we should follow in a modern economy.
AY: Thea, you’ve written quite extensively about conflicts between the old-school resource nationalists who want to engage in, as Miguel described, a hard extractivist resource nationalism, and a newer generation of activists aligned with the indigenous rights movement, who seek to limit extractivism. In the context of oil, these seem like pretty clearly demarcated camps, but does that change in the context of lithium and the transition away from oil?
TR: There was a tension that resonated across the region between environmentalists and indigenous movements, on one side, and Pink Tide governments that had pinned their economic and political mandate on expanding the state role in extractive sectors and, in many cases, expanding extraction in territorial terms. This generated conflicts, especially in Ecuador. Drawing on recent events in Chile, Ecuador, and Colombia, I think there’s been a mutual learning process since then, and both sides are now less defined.
On the one hand, very militant indigenous and anti-extraction activists are still resisting at the point of extraction. But there’s also been a realization of how dangerous it is to have the right wing in power. Left fragmentation leads to even higher levels of criminalization of anti-extraction protesters. It’s worse to be under a right-wing government, even if the left-wing government does not behave well towards those protesters. I think there’s a shared desire to have the left in power, even if those tensions exist. Mexico might be distinct, but in Chile, Colombia, and even in the failed campaign of Arauz in Ecuador, there’s also much more acknowledgement of the environmental concerns of indigenous movements and of pluriculturalism. Both sides seem to be reaching each other a bit.
Is this tension different in lithium or energy transition sectors? Just to underscore what Martín said earlier, I do think that there are new narratives from the state, and these are good and bad from the environmental perspective. On the one hand, many states are emphasizing not the extractive end but the value added—the upgrading, the innovation—and some of those roles have less immediate environmental harm. The state is inserting itself in a part of the supply chain that might generate less conflict with frontline communities, which is a positive way to look at it. But the more negative side is that corporate mining corporations are equipped with a narrative that they need to mine lithium to fight climate change, no matter what the resistance is.
MO: In the case of Argentina, the category left or right isn’t very useful in explaining the positions around the environment and indigenous rights. Obviously there are relatively small progressive groups which are sensitive to this topic. But in general, there is political consensus that lithium and resources in general are strategic industries. On the left, the narrative is more centered around adding value, providing a strategic role to the scientific community, and creating capabilities related to the resource.
On the center right, the narrative is around immediate exploitation and exportation. We have a supposedly left-oriented government, and there are two groups of discussion within the coalition. One group is more sensitive to environmental issues, and the other is in favor of greater extraction, basically arguing that we have the same GDP per capita as 1974. In political terms, the urgency is how to get foreign dollars from the exportation of resources. This is the priority, and that’s why there’s broad consensus.
MAMC: Mexico is trying to balance social and environmental justice. For instance, we are part of the ILO 1969 Treaty, which was incorporated in the recent mining law amendments. Mexican states have a duty to protect the environment and the rights of the indigenous community and Afro Mexican communities.
MO: In Bolivia, many environmental groups were disappointed with the government of Evo Morales. They felt that the government went too far with the exploitation of natural resources. It is a delicate balance—the government needs to deal with the urgency of the economy, which in terms of perception is more urgent than the environment now. It’s important to understand why some people change when they enter government. Promises to an environmental agenda are difficult to maintain alongside a social agenda.
TR: An interesting development is civil society groups thinking in terms of the role of public control, a little distinct from outright state control. Miguel pointed this out earlier: public ownership is maybe broader than state ownership, it can take various forms. There can be community ownership, there can be worker ownership, there can be joint governance. Activists in Chile and elsewhere in the region are saying that they don’t want to repeat Codelco, because Codelco created environmental harms. Instead, they advocate for expanding the role of the public broadly construed in order to meet environmental goals.
The question becomes: even if you arrive with that agenda to power, will that create dissensus within the state? I think that anti-extractivism in the past was more anti-statist, and now there is a greater focus on the hybrid forms of ownership that include the public, civil society, workers, and communities that can ensure more of the environmental agenda is actually implemented.
AY: Commodity shocks have driven many large firms to vertically integrate their natural resource supply chains, particularly in the case of lithium. Tesla, for example, is taking extraordinary measures to secure vast reserves of these minerals, and that means that a new generation of large corporate actors are going to have interests in the region, in natural resources that are at the heart of these national economic development strategies. How can national governments balance their desire to attract foreign investment and expertise with the very troubled history of multinational and American corporate conduct in the region?
MO: The experiences are very different in the lithium triangle. In Argentina, I see no conflict because the market is open to foreign firms. The firms operating in downstream segments—the processes after extraction—are in some cases creating joint ventures with mining companies. In other cases, they deal with supply agreements. If in the future YPF enters the market, it will operate like a private player without privileges. In the case of Chile, there shouldn’t be any conflict if the government creates this public lithium firm. As far as I know, the idea is to create a joint venture, in association with private firms. The two contracts with SQM and Albemarle will remain in force. Maybe the case of Bolivia is different, because the normative framework is different.
MAMC: It is quite the opposite in Mexico. There is conflict, especially with the recent amendments of the mining law. But I’d like to add that it’s not only Tesla, Chinese companies are also working vertically, and the main demand right now is from China. Lithium offers an important opportunity across North America, especially because in the US, it is considered a matter of national and defense policy. In terms of the USMCA, lithium could represent an opportunity for Mexico, but the recently amended law is also under review in the Mexican Supreme Court. It has been challenged for contradicting the Mexican Constitution and trade agreements signed by Mexico.
TR: These answers reveal a lot about cross national variation. What are the implications for state ownership and the state position in the global market of this rush to secure resources? Argentina and Chile are already major producers of lithium. What does it mean to have Tesla, Volkswagen, and BYD China invest? One option is a long-term offtake agreement—Tesla wants to make sure it has a lithium supply for the next ten years, so it contracts directly with a lithium firm to get the supply from a specific mine. The second option is more unusual in contemporary terms, but it almost harkens back to the early twentieth century with direct vertical integration—Tesla might be a joint owner of a mine.
More investment flows and buyers mean demand and prices stay high—this is the positive side. But the geopolitics are complex. Chile is an example, it is an existing producer and it’s establishing a state-owned company. Chile wants to maintain its market position while moving up the value chain, two goals with different policies. The US and the EU have declared lithium a strategic critical mineral, incentivizing lithium production within their borders. Global South producers may lose their market share five or ten years down the line. Now, there’s new competition around raw materials, and Global North states are also pursuing the same developmentalist strategy—they want to move up the value chain and they’re fighting for investment from Korea, Japan, and China to build battery companies. On both ends, Global South producers are being squeezed. In terms of setting up the supply chain and maintaining market share, there’s suddenly competition from countries very well-positioned in terms of their relationship with multinational firms.
Will Chile and Argentina remain number two and three on the lithium production list? Or will they be bumped down by Portugal and Mexico? The whole list of producers is changing and that has a lot to do with the securitization of lithium by the Global North, a strategy pursued by both governments and firms.
MO: The US signed a mineral security partnership with Canada, Australia, the UK, and Germany a few weeks ago. The idea is friend-shoring in response to competition with China. I think that’s the correct framework to analyze the latent question in Latin America. With the exception of the US, I don’t think we’ll find much lithium in other parts of the world, at least at competitive prices, in the next ten years. In Europe, there’s Portugal and some alternative lithium resources, but the technology has to be developed.
In my view, it’s the same with Mexico—I don’t think Mexico will be able to produce lithium compounds or lithium concentrate in the next ten years because they have clay resources and the technology has to be developed. In the beginning, the production costs will be much higher than the rest of South America. I agree with you, Thea, about the context, but I think that South America still has some advantage on the upstream sector, the exploration and production side.
In regards to the competition between the US, the EU, and China, Argentina is the most interesting case because it’s the most open. Last month’s International Lithium Congress in Catamarca expected 200 people, and 800 people from all over the world attended, because Argentina is the only country with good lithium resources open to investment. Chile is practically closed and Bolivia is closed.
MAMC: I agree with Martín. Lithium is present in pegmatite, brine, and even in oceans, and it is economically feasible in brine and pegmatites. Unfortunately, Mexico has lithium waste and clay deposits. It seems that the technology won’t be on our side for the time being, but that’s just on the upstream side. If we are talking about midstream and downstream, we are in a strategic position. Chinese companies can Mexicanize their investment and get access to the North American free trade market. If I were the president of Mexico, I would remain neutral because we need to work with the US—we are basically integrated in terms of global supply chains, but we don’t want to be more dependent on the US economy. Still, we need to open our economy and try to set up a joint venture with the Chinese market because at the end of the day the demand is coming from China, not Europe, the US, or Canada.
The question is, are we going to follow this free market vision? What about the environmental concerns, the questions around social benefits for the public? One of the main critiques is that free trade agreements don’t necessarily benefit the public, and if the public isn’t the beneficiary, we’ll have political turmoil. We’ve seen that in Chile, and tensions are high in Mexico in terms of the US-Mexico relationship. Trudeau and Boric just celebrated the twenty-fifth anniversary of the Canada-Chile Free Trade Agreement. You will not see López Obrador and Biden getting along in this way, and this matters because it’s how countries set up a meaningful dialogue on critical issues.
AY: A decade ago, there was some hope that decarbonization might foster global cooperation. It now seems clear that this is a domain of global political competition, particularly between the US and China. How are various lithium producing countries of Latin America trying to situate themselves within this competition, not to mention within the rest of the global market?
MO: As Miguel said before, I’d say that Argentina should follow the same strategy of neutrality. They’ve done it with the US, China, and even with Russia, but I don’t know how long they’ll be able to maintain it. The US was the pioneer investor of lithium production in Argentina and in the region in general, but in the last few years, China has adopted a more effective strategy and now controls a few sellers in Argentina. In the future, we may see the majority of lithium production in the country controlled by Chinese firms.
MAMC: I would say that Mexico is “nearshoring,”and the decoupling of the global supply chain is not as easy as we may think. In fact, it’s on the verge of a conflict. Chinese companies were granted a concession for thirty years of lithium exploitation in the last administration. But how will that work when the US is our main trading partner? At the end of the day, the best strategy available to Latin American countries is to remain neutral. If you pick one position, then your community will suffer the consequences.
MO: There’s a big difference between Mexico and the rest of South America, which is that Mexico is already integrated into the North American automotive production network. I assume that North American producers that sell vehicles count on Mexican lithium. It will be a delicate balance, because if you have this critical mineral just across the border, it is your strategic advantage. It will be difficult to maintain this neutrality.
TR: If you had asked me a couple years ago if I saw the decoupling of supply chains along geopolitical alliances as a possibility, I would have said well a lot of people I interview in government and corporations either want that or are worried about it, but it’s hard to imagine: how would you take apart these intricate sprawling supply chains, where would you decide the US begins and China ends? Fast forward to the present, and we have decoupled a major economy from a large portion of global trade and financial systems. The Russia sanctions are showing us in real time how something like decoupling could work. At the same time, the US Congress passed the Uighur Forced Labor Prevention Act to scrutinize supply chains that run through forced labor in China, but we are still seeing how it will actually work in practice.
These are two touchstones—Russia’s invasion of Ukraine and the economic fallout and sanctions, and the US Congress showing a rare moment of bipartisanship taking action to limit how goods coming through China are entering the US. This makes it seem more possible to me that there’s a future in which countries need to pick sides. The flipside of friend-shoring, like Martín said, is: will there be moments in which a state-owned lithium company that has a deal with CATL, BYD, or another Chinese battery maker is cut off from the US because it violates the Forced Labor Act? These are real questions with more to them than pipe dreams of autarky.