The lithium industry’s importance will rise in the region, as a focus on expanding social rights and pandemic-related fiscal erosion have governments seeking out additional revenue sources
Firms should continue to closely monitor regulatory announcements surrounding lithium developments across Latin America, not only because they will be telling of each government’s commitment to remaining business friendly but also because the development of this industry could impact the markets’ fiscal standings. This may be less relevant in countries with more diversified economies, such as Mexico or Chile. However, a booming lithium industry could help patch over many of Bolivia’s and even Argentina’s fiscal woes by providing an additional constant source of USD inflows.
- As the rising energy transition elevates lithium’s importance on the global stage, Latin America is poised to capture another resource opportunity. However, recent policy decisions cast doubt on the region’s ability to attract additional investment.
- Around 56% of the world’s lithium resources are located within Bolivia, Chile, and Argentina, the so-called “lithium triangle.” While Mexico does not currently produce lithium, it likely counts on significant potential deposits, which could eventually make the country a key global lithium producer.
- In April, Mexico’s Congress passed a bill that would enable the government to manage lithium production contracts, after the government effectively nationalized lithium deposits last year. Chile’s President Gabriel Boric announced recently that he aims to nationalize the country’s lithium industry, transferring control over operations to a state-owned company. While Bolivia has the largest estimated lithium reserves in the world, it barely produces the metal, while Argentina, on the other hand, is seeking to drive forward additional development amid an increasingly challenging macroeconomic context.
Recent announcements that Argentina, Bolivia, Chile, and Mexico are working to establish a lithium association shine light on the rising importance of the lithium industry in Latin America. Regulatory uncertainty is likely to persist as the lithium industry further develops in these countries, particularly given the current leftward bent of most of the region’s new governments. Increased focus on expanding social rights in markets such as Chile and Mexico as well as fiscal erosion stemming from the pandemic will have governments seeking out additional revenue sources. However, increased investment and additional technical expertise will be required to effectively commercialize the metal at a scale.
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