Argentina is set to go to the polls on October 23 to elect a new government. The election—amidst a deep economic crisis, which includes high inflation (over 100 percent), a complicated exchange rate system, a drought in prime agricultural regions, falling international foreign currency reserves, large fiscal deficits, and a messy debt situation—will be momentous. There is even some talk that the Fernández government may not last until election day. Yet despite a pervading sense of pessimism over the economy, one sector has shined: lithium. The flaky white metal is widely seen as an export that can help grow the country out of its troubles.

But there is a sharp debate about how to play the lithium card: should it be exported as a raw material (in the form of lithium carbonate), with a welcome role for foreign companies, or should there be a value-added process that extends to the creation of a local battery industry guided by the state and restrictive to the foreign sector? The discussion over how to approach this issue is likely to intensify as the election draws closer, with foreign mining companies and governments watching closely.

Lithium as Key to the World’s Energy Future

Lithium’s importance stems from its central use in the making of batteries. As the world moves away from fossil fuels to renewable energy, the need for batteries increases as they are essential to power electric vehicles (EVs) and help augment storage for wind and solar power. In the United States, the great energy transition has received a massive amount of government support, most noticeable in the $369 billion Inflation Reduction Act (IRA). The European Union, meanwhile, is taking measures to secure diverse, affordable, and sustainable supplies of critical raw materials, including lithium.

While the United States and the EU are major users of lithium, China is the largest consumer of the metal due to its use in its booming electronics and EV industries as well as being the world’s leading battery maker. Some of its largest mining/energy companies are already engaged in Argentina. Other countries are also scrambling to find secure sources of lithium, including Australia, Canada, Japan, South Korea, and the UK. According to the U.S. Geological Service, global consumption of lithium in 2022 was estimated to be 134,000 tons, a 41 percent increase from 95,000 tons in 2021. Expectations are that demand for lithium is only going to grow in the decade ahead.

In this rapidly changing energy landscape, Argentina has the good fortune to be part of the “lithium triangle” that also encompasses Bolivia and Chile. It is estimated that 60 percent of the world’s identified lithium reserves are in this region, with Chile being the second largest producer and Argentina in fourth place. Although Bolivia holds the world’s largest reserves (21 million tons) and is seeking to develop its lithium mining, political problems and a longstanding disinclination vis-à-vis foreign investment have translated into only meager output. In contrast to Bolivia, Argentina has maintained a more open investment climate for lithium mining, which is paying off. In 2022, Argentina’s mining exports hit a historic high of $3.86 billion, driven by robust lithium income. Indeed, lithium exports surged 234 percent from a year earlier, accounting for a fifth of all Argentine mining shipments. Most of the country’s lithium is produced in three northern provinces, Catamarca, Jujuy, and Salta, which have dealt with the wave of foreign companies and are indicating that they would like a larger slice of the profits, possibly through a tax increase.

Argentina’s Lithium Choices

Lithium’s attractiveness as an export has gained considerable attention from Argentina’s political class. The question they face is how to extract as much value as possible to benefit the country. The dirigiste or statist model is to nationalize lithium and/or have the state play a major role in its development. This argument is grounded in the view that the global push to renewables provides an opportunity for Argentina to advance its industrialization and technological development while avoiding the risk of reprimarization of the economy. According to Veronica Robert, the Undersecretary for Strategy for Development of the Secretariat of Strategic Affairs in the Peronista Fernández administration: “The development of a manufacturing and technological sector associated with the production of cathode materials (which are derived from lithium) such as battery cells could position our country in a privileged place within the production of electric and hybrid vehicles, in the same way that it could complement our capacity to generate electricity.”

With the dirigiste model, foreign companies are either not welcome or limited to public-private arrangements. According to Marcos Actis, Dean of Engineering at Universidad Nacional de La Plata, “Handing over the lithium mines to foreign private companies was the worst thing that could have been done.” His reasoning stems from the fact that Argentina exports a primary ingredient for batteries but must import by-products and batteries from China for the local industrial development of renewables. His preference is to require foreign companies to install local battery plants, which is being pursued by Indonesia with its nickel mining and in Bolivia.

Actis also believes that Argentina’s state-owned energy company, YPF, should play a more significant role in the lithium sector. While YPF is mainly driven by oil and gas production, it has also created YPF Tec, a technology company that is seeking to launch a lithium battery factory supplied lithium by U.S. mining company Livent (which is mining in Argentina). The plant is the first in Latin America that will produce lithium battery cells, which will be used in stationary batteries for energy storage.

The argument for a more statist role in the lithium sector received a boost from neighboring Chile, whose left-of-center president, Gabriel Boric, announced in April that he will increase the state’s role in his country’s lithium industry to strengthen the economy and protect biodiversity. Under the proposed plan, which must pass the Chilean Congress, the government will negotiate with the two licensed lithium mining companies present in the country—SQM (Chilean and partially Chinese-owned) and Albemarle (American)—for new contracts that increase the state’s share of ownership and profits. Moreover, the state-owned copper mining company, Codelco, will oversee the process as well as help to create a new state-owned lithium company. The reception to this plan was mixed, with much of the global media and investors calling the Chilean government’s action a nationalization, though there was no outright seizure of foreign company ownership.

While the dirigiste model appeals to Argentina’s populist wing, there is a more market-based option. According to Santiago J. Dondo, former Undersecretary of Mining Policy, who served during the more market-oriented administration of President Mauricio Macri (2015–2019), “In Bolivia, Evo Morales convinced everyone that they will not take our lithium if it is not in a Bolivian electric car. The result: Bolivia does not produce lithium commercially despite having the largest salt flat in the world.”

Dondo also noted that, despite discussions over an expanded state role in Chile, that country’s tax regime and mechanisms to boost local battery production have led to a cooling in foreign investment into the sector. The move to nationalize the Chilean lithium industry is likely to further chill foreign investment to Argentina’s benefit.

Dondo prefers what he calls the Australian model, which is based on market-friendly principles, openness to foreign investment, and investment in technology to lower the costs of producing lithium. Consider that while neighboring Bolivia sits on the world’s largest identified reserves, the country has struggled to launch its lithium business since Evo Morales came into office in 2006 and insisted on a very restricted foreign company role and the development of a local battery industry, all run or guided by the state. In sharp contrast, Australia is the world’s largest producer. Dondo and others worry that the adoption of the Bolivian model would take away from Argentina’s attractiveness as a place to mine lithium.

An additional risk in turning away foreign investment is that lithium mining companies and their badly needed technology can go elsewhere. Brazil is developing its own lithium sector, and African lithium-rich countries, such as Zimbabwe and Namibia, are moving to develop processing and refining industries to capture a portion of the global demand for battery material. The more difficult the investment process, the more foreign companies will look for easier points of entry.

The Geopolitics of Argentine Lithium

Argentina’s lithium debate also puts it in the geopolitical crosshairs. In 2022, China made up 43 percent of all lithium exports, followed by Japan at 29 percent, South Korea at 14 percent, and the United States at 10 percent. For the United States, Argentina accounted for 51 percent of its lithium imports in 2023, followed by Chile and China. Consequently, what happens in Argentina matters to the rest of the world. This was clearly reflected by the German chancellor Olaf Scholz’s January visit to Argentina and the current state of intense negotiations between Buenos Aires and Washington to forge some type of trade agreement to allow lithium imports under the IRA, which precludes imports except for countries that have a free trade agreement (FTA) with the United States. Argentina currently lacks a FTA.