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The geopolitical dimension of the Jadar Lithium project, Serbia

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On March 16, the European Commission published a proposal for a new Law on Critical Raw Materials. EU wants to compete with China and the USA in the production of green technologies, as well as to reduce the emission of harmful gases by 2050. Critical raw materials are primarily rare metals necessary for modern green technologies, and lithium is among them. EU members are obliged to carry out geological research and mapping of new deposits in order to reduce import dependence on China through the exploitation of critical raw materials. It is also planned to form a Committee for Critical Raw Materials, which will have the right to declare certain exploitation projects as strategic and reduce the maximum period for issuing permits for the operation of such mines to 24 months. Serbia is not mentioned in the new law, but cooperation with exporters such as Namibia, Chile and Canada is announced. As Serbia is home to one of the largest lithium deposits in Europe, it is not excluded that the Jadar project will also have a geopolitical dimension. Especially since Serbia opened negotiation chapter 15 on energy on December 14, 2021, in the midst of protests against amendments to the Law on Referendum and the Law on Expropriation, which, it was believed, served to speed up the implementation of the Jadar project. Meanwhile, BIRN obtained a report from the meeting between the representatives of the Rio Tinto company and the head of the EU Delegation in Serbia, Emanuel Gioffre, held on March 25, 2022, two months after the end of the project was allegedly put on hold. The company’s representatives then said that they support the local one, but that they are afraid of the results of the national referendum.

A fairy tale of accelerated growth

With its GDP per capita of 7,803 euros, Serbia is 2.6 times behind a medium-developed country such as Slovakia, and even 4.7 times behind the EU average. In other words, the GDP per inhabitant of Serbia would have to grow by 10 percent per year on average over the entire decade just for Serbia to reach today’s Slovakia. Or 13 percent per year to be similar to what it was then (or only slightly less if we take into account the Balasa-Samuelson effect that would act on the appreciation of the dinar and which would eventually help to equalize the GDP per capita faster), assuming that Slovakia in that period grows a modest 2.5 percent. It is immediately clear that this kind of growth is simply not possible – neither without the Jadar project, nor with ten such projects in the next ten years. The President of Serbia has repeatedly said that the exploitation of lithium would contribute to GDP growth of 3.5 to 4 percent. “We would have 3.5-4 percent higher growth on an annual basis,” he literally said. Growth higher by 3.5-4 percentage points per year means that, say in 2022, growth would be around 6.05 percent (actual growth of 2.3 percent plus 3.75 percentage points), and growth higher by 3.5-4 percent would mean that it would be 2.39 percent (2.3 percent times 1.0375). I reasonably assume that the president meant percentage points, not percentages, as he said, for two reasons. First, the difference in economic growth between 2.3 and 2.39 percent, although welcome and many times closer to the real effects, is far from the economic miracle needed for Serbia to catch up with the middle developed European countries. Second, politicians – even when they know the difference between a percentage and a percentage point – almost always use a percentage in both cases to be more “understandable”. And now let’s demystify the claim that the opening of one company, no matter how big it is, could accelerate economic growth by 3.5-4 percentage points and thus enable Serbia to catch up with the mentioned countries. Admittedly, not to catch up with them, because Serbia needs growth of 10 or more percent for 10 years in a row. And Serbia has never achieved such a growth rate. Not during one year, let alone continuously. In fact, such rates can only be achieved by extremely underdeveloped countries with a growing and young population, such as China (two decades ago) or African countries. In addition, history is dominated by examples that show that through the direct exploitation of mineral raw materials, few countries, and even fewer populations, developed (became happy), and that instead of economy, corruption mostly develops. This is also shown by the countries of South America, which are incomparably richer in ores.

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Having shown that even an increase in growth by 3.5-4 percentage points alone is insufficient to fulfill the fairy tale, we will now show to what extent it is impossible and improbable to achieve it through the Jadar project. First, the information that this project would increase growth by so much is not even in the study on economic effects, prepared by Rio Tinto. The study evaluates the economic effects significantly more modestly – the project would increase the GDP by 2.8 percent in the phase of full realization – that is how much it would participate in the formation of the GDP. Therefore, if the Jadar project were to be realized, and everything else in Serbia remained unchanged, the GDP per inhabitant would increase from 7,800 to 8,029 euros. The opening of the mine would help, therefore, to cross only one eightieth of the way to the “then Slovakia”! At the same time, all these assumptions in the Rio Tinto study refer not only to direct, but also to indirect (development of domestic suppliers and subcontractors) and induced effects of the project (generation of GDP through spending of income generated in the company). Assumed indirect effects (not directly dependent on the project) actually make up most of the assumed effects – out of 5,120 new jobs, only 1,170 are predicted to be created in the mine, and the remaining almost 4,000 are related to indirect and induced effects. This is not necessarily too optimistic, but, nevertheless, a project of this size must require serious planning – which new investments would it attract, which domestic suppliers could it hire, do they need support to increase capacity, acquire new equipment, and the like – otherwise these effects would be completely absent.

Let’s take a step back, to the claim that the opening of one company can make up for Serbia’s 30-year lag by accelerating growth. The statement that the opening of one company could accelerate growth by 3.5-4 percentage points indicates economic illiteracy or deception. Because it would have to be a company with the economic strength and size of EPS, three Ziđina or six Michelin factories. And every year for the next ten years. At the same time, the business assets of EPS, together with Kolubar, are 4.5 times larger than the planned investments in the Jadar project, while the number of employees in EPS is 30 times larger! Considering the similarity of the industry, a convenient comparison with the Jadar project is China’s Zijin, as it had comparable investments and has six times more direct employees. At the macro level, Ziđin generates about one percent of Serbia’s GDP, and in the past, a record year for them, it participated in exports with 4.5 percent, and very similar effects are expected from the Jadar project. It is indisputable that the revitalization of the Bor mine was of great importance for the local economic activity – 20 percent of the employees and more than half of the wages paid in the Bor area. In the case of the Jadar project, the effects would be similar, but still somewhat smaller, since the surroundings of Loznica have a different economic structure and there would be a shutdown of certain economic, primarily agricultural, activities. By no means should we leave out the effect on the environment either – despite Ziđin’s alleged efforts to reduce pollution, Bor is the “black point of the Balkans”. The problem of growing pollution coincides with the start of work and increased production. Would it be the same in the case of Jadar, is one of the main questions to which there seems to be no credible answer.

The fiscal moment is also important. As a major investor, Rio Tinto would effectively be exempt from paying corporate tax up to the amount it invested in the project – paradoxical but true, just like Ziđin. To conclude, the effects of those two investments would be comparable, they have positive sides – although not close to hyperbolic claims, for the fulfillment of which a clear strategy and a more meaningful fiscal policy are needed. Both investments, unfortunately, have negative effects, primarily on the environment. This analysis is neither for nor against the Jadar project per se. The situation in which Rio Tinto finances economic and environmental impact studies certainly has a negative effect on the credibility of the facts. Telling fairy tales has an equally negative impact. Maybe it would really have more significant economic effects, but there is no one to plan them and convince us of that. It might not have an irreparably negative impact on the environment, but no one can guarantee that. This is also the key development problem of Serbia. At this moment, I am closer to the point of view that Serbia is not institutionally mature for something like this.

Economist Nebojša Katic also wrote about the economic effects of the Jadar project more than a year and a half ago. “If Rio Tinto start with exploit and export of ore from Serbia, export revenues will increase Serbian GDP, but these revenues belong to Rio Tinto and, as a rule, do not stay in Serbia.” Serbia will have mineral rent from that, maybe Rio Tinto will pay some taxes, and some will even get a salary working for Rio Tinto. This is where the financial benefits for Serbia will end and they will be incomparably less than the statistical growth of GDP,” Katic wrote in the author’s text, with the remark that “economists really like indirect effects because they can estimate, magnify and manipulate them as much as they want, or as much as they are paid”. The words of Luka Erceg, a native of Canada, originally from Loznica, master of law and economics and director of a company in the USA that manages investments, have even greater specific weight. All the more so since until 2013 he ran a company for the production of lithium in the USA, about which he also spoke to the leading world media, the New York Times, Bloomberg and CNN, and in 2012 he spoke about strategic minerals in the US Congress. “The Jadar project will never be able to compete economically with lithium extraction projects from salt water, which are being developed around the world.” I would recommend that Serbia explores old oil and gas sources, because in many of them, economically profitable amounts of lithium have been found,” Erceg claims for NIN.

“Extraction from salt water is more economical and can withstand falling prices.” If we insist on the Jadar project, it will be shut down in a few years, because lithium from salt water will lower the price. More and more such will arrive from the “lithium triangle”, which consists of Argentina, Bolivia and Chile. Furthermore, lithium for car batteries is not obtained from rocks, because it has too many impurities,” explains Erceg, noting that everyone forgets that lithium batteries last for ten years, and that they can be recycled afterwards. “That’s why eventually we won’t need to produce as much lithium as we do today, because even after recycling it will be able to be used as if it had just been taken out of the mine.” It would therefore make more sense for Serbia to encourage factories for the production and assembly of lithium batteries, which are large and heavy, so local production has advantages. Such a technologically advanced industry would also be stimulating for students of engineering, electrical engineering, chemistry… and that is why it is better to deal with it than ores. I would praise the government for developing technological industries and in general I would recommend it to focus on “knowledge industries,” because the lithium mine will not create many new jobs,” Erceg points out. “After all, it is not impossible to have a lithium mine like the ones that exist in Australia.” But look at the pictures of the disasters those mines have created. At the same time, what exists in Australia does not exist in Serbia. Australian mines work because ore is sent to China for processing. When the ore is processed there, there are also battery manufacturers nearby. Where will Jadar send his ore or his lithium?” The already fantastic story of Serbian officials about lithium billions could hold water as much as possible while the demand and prices of that metal on the world market were breaking records month after month. Meanwhile, the situation has changed dramatically. On April 28, global media reported that the price of lithium carbonate had fallen to an 18-month low, from a record high of $86,170 to around $52,000 per metric ton. In March of this year, somehow just at the time when Vučić brought back to the public the story of the greatest missed opportunity, the price fell by 64.22 percent compared to March 2022. And at the same time, world agencies do not cite the key reason for such a price drop only a weak demand, but an abundant supply.

At that time, experts estimated that the drop in lithium prices would be reflected in the drop in prices of electric cars, if their sales would not increase. And then, when the sale of electric cars increases, one could also expect a recovery in lithium prices… But that was obviously a long shot. Meanwhile, the decline continued on the first working day of this week, on September 4, a ton of lithium carbonate cost $27,861 on the world market, and just a month before that it was $37,612 or 35 percent more. The dramatic decline is even better evidenced by the fact that the price of lithium a little less than two years ago was almost three times higher than it is now. This time, lower demand contributed to the decline, not much higher than the lowest at the beginning of the pandemic, in April 2020. Despite this, Serbian officials have not changed their story, as if they are still basing their calculations on record lithium prices. It was as if time and everything else had stopped. Everything except an effort to revive the fairy tale about the economic effects that Serbia would have if the Government decided to change its position and still enable lithium mining. However, Minister Momirović was right when he said that “we will only see how this story unfolds in the coming period, but we cannot ignore the perspectives it opens up.”

Source: NIN

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