Lucky Bolivia and the Future of Lithium in the World EconomyBy: COHA Research Associates Andy Blair and Adam Bloom
- Bolivia contains half of the world’s reserve of Lithium
- Automotive world needs to reinvent itself to fit the 21st century demand for clean energy
- A rare opportunity for the historically impoverished country to become a major player in the global economy
- U.S. could be running the risk of replacing it’s dependence on foreign oil for a dependence on foreign lithium
Lithium, the lightest and least-dense metal in existence, provides a number of advantages over nickel and alkaline batteries. The metal is used to produce batteries which now have a lifespan of 15 years that can serve as the energy source for digital cameras, cell phones, clocks, watches, and toys. Lithium batteries are far lighter than their alkaline counterparts yet can last up to eight times as long. They can also withstand very harsh conditions and temperatures that would cause alkaline batteries to malfunction. Currently, nickel batteries are more affordable than lithium, but as the supply of lithium rises, so will the demand and eventually will be a comparably priced yet have better quality energy source.
The true upside of lithium batteries is their enormous potential for the automobile industry. Current hybrid cars such as the Toyota Prius use nickel metal hydride (NiMH) batteries to fuel the car, but only at low speeds. Once the Prius reaches around 15 mph, the gasoline engine turns on and begins to take over as the fuel source. Engineers believe that the future of automobiles will instead reside in electric cars that run exclusively on lithium batteries. But currently, the most available battery (NiMH) is not the most efficient ore of automakers’ dreams, but rather its only lithium’s successor. There are not many lithium-ion fueled cars on the market because lithium technology has not reached an affordable rate. This is changing though; the first all-electric lithium vehicle was the 2004 Volvo 3CC concept car, which produces zero emissions. Manufacturers are set to implement the lithium-based energy systems in General Motors’ Chevy Volt as well as new electric versions of the BMW Mini, the Daimler Smart, and the Toyota Prius.
Before Bolivia will be able to reap the profits from lithium, Bolivian President Evo Morales will need to drastically strengthen his nation’s industrial and transportation infrastructure in order to fully take advantage of the country’s lithium reserves in order to meet the recent demands for eco-friendly cars. To accomplish this, he may have to look for this help in the private sector. Besides the financial and engineering difficulties involved in processing lithium, Bolivia may need to improve rocky relations with the United States which presently represents the world’s largest market for new alternatively fueled automobiles. Washington right now is pushing for the transformation of the U.S. automotive industry to now be based on energy-efficiency and environmentally-friendly engines, with many of them relying upon lithium batteries. Politicians across the board last fall ran on a plank based on ending foreign oil dependence, and it is unlikely that voters will want to meekly transfer this dependence to lithium.
A nation on the rebound
Processing raw lithium carbonate into lithium-ion batteries will be a protracted task due to Bolivia’s anemic economy, which has been adversely affected by the decrease in the price of petroleum and the sag in commodity prices. Before this, Bolivia had been shattered by a series of military coups from 1978 to 1980 and then by a major economic crisis in the mid-1980s. This crisis, which resulted in 24,000% inflation in 1985, crippled the government and raised the country’s foreign debt to $3 billion, over which Bolivia is still struggling to recover.
Social issues also have profoundly affected society as thousands of indigenous protesters took to the streets of La Paz in the past several years to voice their opposition to the privatization of natural gas. These events allowed Morales to gain the necessary momentum to propel himself into the presidency in 2005. Since then, he has attempted to steer his nation away from the prevailing influence of the Western powers towards a more self-sustaining and participatory society based on autonomous development. As the first Bolivian man of indigenous heritage to be elected president of his country, Morales has worked to gain basic rights for the country’s large population of native peoples, which makes up a clear majority of all Bolivians. In 2008, he had his hands full, as separatist movements in the east supposedly set fire to a natural gas pipeline in September. As of recent, Morales then had to declare a state of emergency in the Pando department after at least twenty people had been killed in sectarian riots. After entering into a compromise with the opposition late in 2008, Morales staged an historic referendum in February 2009 that called for land redistribution of the holdings of the country’s powerful European-descended minority in favor of its indigenous majority. The referendum also permitted Morales to run for president for another term and gives the indigenous a substantial stake in the nation’s abundant natural resources.
Even though over half of the world’s reserve of lithium lies under Bolivian soil, the two largest lithium exporters to the U.S. are Chile and Argentina. According to the United States Geological Survey (USGS), Chile provides 61 percent of lithium exports to the U.S. and Argentina is the source of 36 percent. Chile has a reserve of an estimated 3 million tons and Argentina weighs in with 400,000 tons, while Bolivia’s reserve is calculated as being about 5.4 million tons. This disparity between the total tonnage of U.S. imports and Latin America’s reserve bases shows the leverage that Morales possesses. By taking advantage of Bolivia’s substantial natural resources, he can realistically plan to lift his country out of poverty and increase its role as a significant player on the global market. Even prior to increased demand for lithium, the Bolivia’s mining industry was producing significant gains for the country, leading to a 9.4% increase in its GDP, as reported in early 2008.
The demand for lithium is expected to rise with the runaway demand for eco-vehicles. As a result, last April, Morales started construction on a pilot plant to extract lithium at a location on the delta of Rio Grande in Uyuni. According to Bolivian economist, Juan Carlos Zuleta, this pilot plant will cost about $5.7 million, and the plan is that it will be expanded to refine other metals, which could cost as much as another $150 million to facilitate. Of course, these activities have a potential to produce an extremely lucrative result despite the high cost of implementing the processing.
Business side of lithium
In lithium, Bolivia may have found its 21st century oil and silver equivalent, and it appears that the price for the metal will soar. Over the past few years, lithium deposits have been discovered in China, Russia, Serbia, Australia, Chile, Argentina, and most recently Bolivia. But as supply rises and lithium is viewed as a viable and reliable fuel source for automobiles, with ample supplies now in hand, the demand nevertheless is sure to rise exponentially. Mitsubishi estimates that the demand for lithium will exceed supply within 10 years, unless new alternative fuel sources are found. According to Eichi Maeyama, Mitsubishi’s general manager in La Paz, “the demand for lithium won’t double but increase by five times.” This is why Mitsubishi along with Sumitomo and a French conglomerate, Bolloré (BOLL.PA), are trying to lobby Morales into allowing them to invest. On February 17th, Bolloré announced that it will be submitting plans to develop lithium mining. Currently, lithium is not traded as a commodity so investors are looking into companies which sell the metal. One company that is traded on the NYSE is the Chilean firm, Sociedad Quimica y Minera de Chile (SQM), which has been creating quite a buzz throughout the financial world.
Lithium sells for approximately one U.S. dollar per kilogram, but this price is expected to rise significantly over the next few years. Though the lithium battery market is still in its infancy, Asian companies and Bolloré have been projected as the early winners, leaving U.S. companies in the dust. However, these new lithium discoveries have opened up the market to a multitude of smaller companies throughout the world, such as Massachusetts’ A123 Systems, which is receiving large amounts of attention from investors at Motorola as well as researchers from MIT. Due to the recent decline in laptop and digital camera sales, the immediate future of lithium has been somewhat hedged.
Meanwhile, those investing in lithium do not seem to be as pessimistic about this slump in the economy as those trading in other markets. Peru last month witnessed the inauguration of the industrial minerals international market. This conference featured almost all of the world leaders in lithium production. The event was centered around three themes: a focus on established lithium producers and their natural markets; on the approaching automotive challenge, and on emerging lithium producers and their resources. Participants were offered a tour of the SQM operations at the end of the two-day conference. The inaugural conference was held as the world economy was plummiting, which could be a good sign for lithium’s future.
What Bolivia needs to know to make the best decision
Like many other producers of crude oil, Bolivia finds itself in a frustrating situation regarding its processing and the refining of its raw materials. It finds company in the history of the incumbent automobile fuel source, petroleum. There is a great deal that the Bolivians could learn from the Saudis regarding what they should do with its lithium reserves and how to extract them. To achieve this, Bolivia will want to strive to find the answer to a number of questions with which the Saudis have dealt over the years, and continues to deal with, such as how wealth will be distributed if the commodity is nationalized, how to maintain a balance between maximum production and environmental stability, and what will stabilize the economy once the commodity is exhausted.
Saudi Arabian oil is owned by Saudi Aramco – a state owned entity; however, this wasn’t always the case. Standard Oil of California originally found oil there in 1932 and started to drill. Over time, the government purchased portions of the company until eventually it owned Aramco. This is significant because at the time when oil was first discovered in Saudi Arabia, the kingdom lacked any source of wealth because it had no proven natural resources to commercialize. Due to the deficiency in its financial resources, Saudi Arabia couldn’t provide the fixed capital to make the investments necessary to extract the oil on its own. This catch-22 situation is similar to Bolivia’s current stasis. Although Bolivia has more natural resources than Saudi Arabia did at the time, it perpetually has been fenced out from such materials as gold, silver, and tin by foreign transnational corporations chartered mainly in the West and which controlled these assets. Though its economic possibilities seem endless, Bolivia cannot hide from the reality that it is a poor country that must act cautiously if it is to launch a large corporate structure determined to exploit its lithium holdings.
There are three routes Morales can pursue. He can decide to run a state-owned industry which would theoretically produce an impressive amount of income for the public treasury. But the efficiency of the corporation in question would be somewhat deficient due to the fact its personnel has had no experience or qualifications in running a mining operation of this complexity and type, nor did it seem that the promoters have come up with the necessary funds to adequately construct new facilities. This however, does not appear to be the decision he has made.
Morales can also decide to allow certified investors to come into the country with the necessary capital to start out and plumb the revenues that have now been established. Much like the Saudis did, Bolivia could methodically purchase the company back with their rising capital until the lithium deposits became exclusively owned by the country itself. This would take much longer, well beyond Morales being on the scene. However, Bolivia would not need to invest so much into the operations and could simply receive the benefits of tax revenue and the many jobs that would be created. The downside is that ultimately the government would not be receiving all of the profits, as well as run the risk of over-exploitation of resources.
Bolivian Minister of Mining Luis Alberto Echazu vows that this will not happen again in his country. He explains that Bolivia will not make the same mistakes that have been made since the 16th century, and allow foreign powers to exploit its resources to its disadvantage. Echazu explains that for this reason, Bolivia could allow outside corporations to develop mining facilities throughout the country, but only if they would fruitfully comply with Bolivian regulations, which traditionally have pressed new enterprises away from dealing directly with important decision makers. But in the case of the lithium deposits, local foreign businesses might be willing to compromise with Bolivia because of the potential for profit is so great.
Then of course there is the third option of combining the previous two. Bolivia could own 51 percent of the new operations while allowing foreign capital to invest new funds through acquiring the remaining 49 percent share of the business. This would keep the final decision in the hands of the Bolivian people while at the same time provide enough capital upfront to commence the production process. Whichever path Morales decides to go down, the end result could be the creation of a greater ability to produce lithium and a subsequent boost to the national GDP. The only real question is how much influence Morales would tolerate from outside investors.
Why lithium will give Bolivia a chance to renovate its economy
The reason that Bolivia’s lithium resources are sure to transform its economy is because of the revolutionary challenges being posed to the U.S. automobile industry which is currently having to deal with questions of its own survival. Since his election Barack Obama has signaled his wish to transform the role of the automobile in U.S. public life. On January 26, Obama issued a memorandum granting California’s request to receive a waiver under the Clean Air Act, allowing the state to set emission standards for new vehicles that are stricter than federal standards. California – a state with 12 percent of the entire U.S. population – wanted to establish stricter standards for its residents but was not allowed to do so by the EPA, under the Bush White House, in March of 2008. Higher mandates set by California would push all automakers to develop cleaner engines, most of which will receive the bulk of their power source from lithium-ion batteries.
President Obama has also made global warming one of the key issues of his administration. This desire for clean energy will be complemented by California leadership in both the House and Senate. California Senator Barbara Boxer (D) is chairman of the Committee on Environment and Public Works, while California Representative Henry Waxman (D) won the battle for chairmanship over Detroit automotive mouthpiece John Dingell, who has been the chair of the Committee on Energy and Commerce since 1981. The legislature is now prepared to create comprehensive legislation that will move the country closer towards clean energy. Representative Waxman noted that, “our committee will be acting quickly and decisively to reduce global warming and end our dependence on foreign oil.” The dependence on foreign oil however, might turn into a dependence on foreign lithium, seeing that according to the USGS, the U.S. contains only about 3 percent of the world’s lithium reserve base.
In order for Morales to capitalize on this historic opportunity and for the U.S. to continue the fight against global warming, both countries will have to work at improving their recently frayed relations leftover from the Bush Administration. In October 2008, the U.S. suspended trade benefits to Bolivia for allegedly failing to cooperate with Washington’s drug-fighting efforts. At the same time, the U.S. will need to give up it’s bullying of Latin American states to get the policies it seeks after. The outlook seems more promising now with Obama’s intention on restoring diplomatic ties with South American nations through constructive engagement without any qualifying conditions with left-leaning nations such as Venezuela and Cuba, as well as the rest of the region. After the election, Morales praised Obama’s victory exclaiming that, “Mr. Obama’s triumph is really historic. We congratulate him on that triumph and we await the improvement in our (bilateral) relations in the future.” After Morales’ constitutional referendum victory, he was congratulated by the U.S. State Department, revealing a welcomed change of tone from both sides.
Morales’ European Tour
During his recent trip to Europe, Morales claimed that he left “very satisfied” after his visits to both France and Russia. During his tour, Morales met with state leaders and corporate executives who demonstrated marked interest in Bolivia’s natural gas and lithium reserves, as well as La Paz’s interest in purchasing helicopters to aid in its anti-narcotics enforcement.
Though no deal was finalized, Morales deliberated with high executives of the French conglomerate Bolloré, one of a growing list of companies vying for access to Bolivia’s vast lithium reserves. Alongside Bolloré, Japanese companies Mitsubishi and Suitmoto, as well as South Korean company LG Group are competing for access for the reserves. Morales was left impressed with Bolloré’s and Italian automotive company Pininfaria’s desire to produce cars that run completely on lithium batteries.
But Bolivia has grand ideas of its own for the lithium market and has listed many conditions that it wishes to settle with whoever is its potential partner. Morales is seeking a collaborator that would not only aid in the building of Bolivia’s first lithium-processing plant, but fully develop the Bolivian lithium industry into a powerful entity. His spokesman, Ivan Canelas, went so far as to say that such a proposal would include assistance in jumpstarting the industry “and even the manufacturing of cars in our country.” While the lithium-processing is still in its budding stages, the prospect of a state automotive industry is nothing more than sheer optimism at this point. But Morales stood firm on his stance that such an industry, built on Bolivian soil and employing Bolivian workers is the best way to make use of the country’s new resource.
La Paz has wasted no time in asserting its right to take full advantage of this enormously valuable resource, having suffered from a history of foreign exploitation. With construction already underway on its first lithium processing plant, Bolivia has made clear to its potential foreign suitors that any exportation deal will be contingent on provisions for the development of a commercial infrastructure in the Andean nation. Morales has confidently asserted that “internal colonialism and external colonialism ends here.”
The People of Bolivia
Evo Morales has an immense task ahead of him. In addition to creating and controlling a lithium economy that will benefit his entire population, and rehabilitating relations with the U.S., Morales must address concerns about lithium’s public health impact. Lithium is potentially dangerous to those people exposed to it for an extended period of time. Processing plants produce sulfur dioxide, which has been known to cause breathing difficulty, pulmonary edema, and even death.
Keeping the lithium revenue equally distributed amongst the entire population will be difficult. Natural gas within Bolivia historically has benefited the rich, who are in control of the resource-rich regions of Santa Cruz. There are measures, however, which Morales can take to prevent, or lessen the scope for, disproportionate distribution, possibly by nationalizing the lithium mines.
Morales will also need to work closely with fellow lithium-producing countries, Chile and Argentina. This would be difficult to achieve with Chile, since relations between the two countries have been strained for over a century. If the Bolivian president allows the free market to take complete control of lithium, then the commodity will not be as valuable. Taking command and attempting to cartelize the commodity, which will provide Bolivia with the ability to enhance its prices, would provide the opportunity to improve social programs throughout the country.
The best thing Morales can do is take the wealth generated by lithium and invest it in education and health programs for his people. There is currently a literacy rate of 86.7 percent and infant mortality rate of 49.1 per 1,000 births in Bolivia. An investment in social programs will ensure the country does not become largely dependent on lithium as a single source of its wealth. The future generation of Bolivian leaders can become equipped with the knowledge and skills necessary to succeed in the global economy, but it all begins in the classrooms.
Bolivia’s indigenous population is in a more promising situation given the successful passage of Morales’ new constitution on February 2; one provision in it, according to the New York Times “could give Indians control over the natural resources in their territory, strengthening their ability to win concessions from the authorities and private companies, or even block mining projects.” The head of a division in Comibol that oversees lithium extraction, Saúl Villegas, also told New York Times reporter Simon Romero that “the previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia, [but] maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.” This is something that Morales is likely to ensure as Bolivia moves towards the development of its mining sector.
Bolivians are hopeful that lithium will prove to be a blessing for the entire population. “We know that Bolivia can become the Saudi Arabia of lithium,” said Francisco Quisbert, 64, the leader of Frutcas, a group of salt gatherers and quinoa farmers on the edge of Salar de Uyuni, “We are poor, but we are not stupid peasants. The lithium may be Bolivia’s, but it is also our property.”