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White is the new black
Why South America's strategic importance is about to boom
Oil. If your country has it, riches beyond your wildest dreams (for a few, at least) await. Some countries have used it wisely (Norway). In others, it’s been a disaster (Nigeria). And for others, sometimes it’s a boon and sometimes a curse (Venezuela). Regardless, oil is such a fundamental component of the world economy that having it meant a well-endowed country was a player on the world stage. As we progress into the 21st century, however, there is a growing shift that the days of “Black Gold” may be, if not coming to an end, losing their importance. The world is transitioning away from fossil fuels. Coal was the first to draw the ire of the world community, and rightfully so. Coal is terrible. Next up is oil.
Transitioning away from oil, however, is going to be much trickier than transitioning away from coal. Coal always had competition; even 50 years ago power plants were running on natural gas, nuclear, hydro, etc. Moving away from coal meant moving towards an established technology that already provided energy for billions of people. Oil, on the other hand, has had a near monopoly on vehicle fuel since the car was invented. Sure, there has been talk of electric cars, hydrogen cars, and even cars powered by french fry grease for decades, but for practical purposes it has always been oil.
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But now electric cars are having their moment. As I talked about in my post about renting a Tesla Model 3, they are fun to drive, quiet, and best of all, environmentally friendly. Of course, environmentally friendly is a relative term. While Teslas don’t require gasoline, they still require electricity. And because electricity can’t just be stored in a tank like gasoline, they require batteries. Big batteries. And those batteries rely on lithium.
Before cell phones, lithium was just another element on the periodic table. Memorable mainly because it has an atomic number of 3, it sits at the tippy-top of the table next to Beryllium. Unfortunately, this configuration means lithium is highly unstable, to the point that it does not occur naturally. It is also relatively scarce. Cell phones changed all this. Lithium is the best metal to use in batteries, and all of a sudden every adult needed about a gram of it in their cellphone.
Then came electric cars. While cell phones need about a gram of lithium each, an electric car needs an astounding eight kilograms. In other words, one electric car battery could provide lithium for over 8,000 cell phones. This new use has led lithium to be dubbed “White Gold”. Where’s all that lithium going to come from? Fortunately, the United States has fairly large reserves, at around 9.1 million tons. China also has quite a bit of lithium. But the real
gold lithium mines are in South America:
The lithium triangle, pictured above, is thought to contain over half of the world’s lithium reserves. This puts Argentina, Chile, and especially Bolivia in a tricky place. On one side, they have enough lithium, that if husbanded wisely, could lift the area out of poverty and might one day make the region as wealthy as the Persian Gulf is today. On the other hand, people are willing to fight and die and hoard resources this valuable. Oil certainly hasn’t done the average Equatorial Guinean any favors.
These countries, especially Bolivia, which has the largest reserves, need to tread carefully. Suddenly having land on top of vast mineral wealth is a mixed bag. Consider the tiny country of Nauru, which became the wealthiest nation on earth after it began mining and exporting its phosphate reserves. Those reserves were quickly exhausted, and today Nauru is poorer than Jamaica.
If Chile, Argentina, and Bolivia are smart, they will create a free-market economy with significant government oversight. Private corporations should be allowed to set up shop and start exporting lithium. Contracts they sign with the government should be honored, and the government should see private companies as partners, not adversaries.
That said, government needs to take an active role overseeing lithium production. Three key areas need to be focused on. First, the environment. Some of these lithium reserves are in delicate ecosystems. Mining is going to necessarily destroy much of the area. That might be worth the tradeoff, but the damage needs to stay limited to places directly over lithium deposits. Nearby areas need to be monitored and contamination needs to be limited.
Second, the labor force needs to include local workers. Lithium mining requires a mix of unskilled and high-skilled labor. Too often locals are pushed into jobs that require only physical strength, and no human capital is built. Local governments should make sure that companies are required to hire natives in both entry-level and managerial positions. At the same time, these positions need to go to the most qualified locals, not the cousin of the deputy minister for mining.
Third, and most importantly, tax revenue needs to be closely accounted for. Government employees of developing countries have a long history of looting the treasury when windfall profits come in. Look at Nigeria, where an impossible 95% of the oil produced at one hub is stolen. Much of Bolivia is poor, and $1 million is enough to set up a corrupt government employee for life. This will happen if the governments involved don’t set up strong anti-corruption bureaus with real power.
Creating a friendly business environment with proper government oversight will not be easy. But it is possible. I hope the three countries are ready.