When Evo Morales was elected president of Bolivia in 2006, eyebrows were raised as he set about to reverse the privatisation process of the previous 20 years and align Bolivia with the blend of socialism and populism typical in other Latin American countries. Ten years on, however, and Mr Morales’ 'Andean capitalism' has put Bolivia at the forefront of economic growth in Latin America.

Once a symbol of underdevelopment, Bolivia has been able to raise millions from poverty and even (partially) regain the favour of the private sector after the early, tumultuous nationalisations of Mr Morales' presidency. And although the commodity boom was good for Mr Morales, Bolivia has shown a resilience since the end of the commodity super cycle, outperforming higher rated resource-rich neighbours such as Chile and Peru.

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Two years into his last term (a referendum in February denied him a chance to run for another term), Mr Morales is now betting on a combination of public and private investment, alongside growing internal demand, to shore up economic growth and uncouple the Bolivian economy from the ebb and flow of the resources sector.

Resource resilience

“Our nationalisation agenda is over,” says finance minister Luis Arce, the man behind Mr Morales’ deep reforms of the Bolivian economy. “We re-nationalised those assets so that we can transfer their surpluses to the country’s new economy and to social programmes. But we are now building a new country, we need FDI, and we respect genuine, new private investment. Today FDI makes up 2% to 3% of our GDP. We want to double that by 2020.”

Bolivia’s fortunes have been tied to its abundant natural resources since the time of the Spanish conquistadores. As reserves were exhausted, new ones came to light. Today, Bolivia holds Latin American’s second largest reserves of natural gas after Venezuela, and the world’s largest reserves of lithium, an increasingly sought-after component of batteries for mobile phones and electric cars. Commodity production accounts for most of the country’s exports.

When the tide turned on the commodity markets, Bolivia was not spared. Economic growth slowed to 5.5% and 4.1% in 2014 and 2015, respectively, from 6.8% in 2013. But the rest of the region was hit much harder, and Bolivia has emerged as Latin America’s fastest growing economy for the past two years. Authorities expect economic growth of about 5% in 2016.

Wooing private money

The government is making efforts to mend fences with the private sector after the wave of nationalisations that followed Mr Morales’s election kept foreign investors at bay for years. With plenty of financial backing from new partners from China and, more recently, India, as well as renewed access to the international bond market to back public investment programmes, Bolivia does not necessarily need private capital in itself, but the know-how that private investment brings with it.

“We need technology partners for the development of our strategic sectors [where private investors can co-invest with state companies that retain at least 51% of any resulting joint venture],” says Mr Arce. “There are other sectors such as tourism and manufacturing that are free to private investment. Bolivia has economic, social and political stability, and investors cannot find these opportunities together in other South American countries these days.”

Investment legislation passed in 2014 guarantees equal treatment for domestic and foreign firms. However, it also stipulates that public investment has priority over private investment (domestic or foreign) and that the Bolivian government will determine which sectors require private investment. Additionally, the Bolivian government does not recognise third-country arbitration in its commercial agreements, meaning any dispute has to be settled through the local judicial system.

“Companies in Bolivia are subject to arbitrary requirements such as the 2013 announcement of the requirement to provide a second Christmas bonus (repeated in 2014), as well as annual, retroactive wage increases,” says to the US State Department.

The country’s economic growth has resulted in ways for investors to offset these risks, however. “Despite the real challenges to investing in Bolivia, investors who have adequately assessed the risks can find many profitable opportunities,” the US State Department concludes.

New wave of FDI

FDI in Bolivia peaked at $1.75bn in 2013, according to figures from Unctad. Although realised FDI subsequently fell to $503m in 2015, the lowest level in years, announced FDI into greenfield projects reached $2.4bn that year, the highest level since Mr Morales came to power in 2006, according to figures from greenfield investment monitor fDi Markets. Oil and gas companies made up the lion’s share of total greenfield investment even after 2006, when they were forced to transfer rights over their local assets to state-owned utility YPFB and sign service contracts with it.

Hoping to trigger a new wave of investment in the sector, this year the government introduced incentives for companies seeking new hydrocarbons resources. Similar incentives for the mining industry are in the process of being worked out, Mr Arce confirms. Beyond the development of its resource base, the government is also emphasising the need to add value to the production chain. 

“We will invest $48bn between 2014 and 2020,” says Mr Arce. “Our main focus is the industrialisation of strategic sectors such as oil and gas, iron ore and lithium mining and the agriculture sector, alongside the development of key infrastructure. At the same time, we would like to be a bigger energy player in the region by exporting electricity to our neighbours.”

Projects in industries such as petrochemicals and metal processing are being rolled out, and the capacity of the local energy base has been dramatically upgraded to make electricity a key component in the country’s future export matrix by more than doubling its total capacity base to 4818 megawatts.

“Bolivia is becoming the energy heart of South America,” Bolivia’s ambassador to the UK, Roberto Calzadilla, said in London in June. However, with Mr Morales’ closest allies in the region falling or dramatically weakening as a new generation of Latin American leaders, led by Argentina’s Mauricio Macri, emerges, Bolivia may find it more difficult to place its exports around the region. It remains to be seen how the president’s final years in office will define the country’s place in the new Latin America.