Daily Archives: June 12, 2012

What happens when a government nationalizes private ventures?

Milenio Foundation is a very reputable and serious think tank in Bolivia. They just published their Report “New nationalization cycle” No.150, dated June 8, 2012. To nationalize is to capture private companies and convert them to state-owned; in Spanish it is also called ‘estatizaciones’.

The conclusions of this report follow:

Conclusions

The estimated cost of the nationalizations, so far, is high. The amounts that are negotiated or requested allow to infer that the total could exceed $1,000 million dollars. This amount does not take into account other emerging costs of the ‘estatizaciones’.

Considering the $947.4 million dollars as the likely cost of the nationalizations, in some cases only some companies were already compensated in others still, the money used to pay for the companies, or to be paid, is but a loss of capital for the country that could have been aimed at the expansion of the productive capacity. For example, it was paid $112 million dollars for oil refineries bought from Petrobras, but the country does not have a new refinery and also did not expand existing ones.

The ‘estatizaciones’, made most by surprise and in a coercive form, generate a serious damage to property rights and seriously impair legal certainty factors necessary to attract foreign investment and ensure private domestic investment. Altogether the ‘estatizaciones’ not allowed to significantly increase the total investment. The gross fixed capital formation in relation to GDP (investment rate) on average, from 2006 to 2011, barely reached 16.2 per cent, which was always the historical level, with the exception of the period 1997-1999, when the average was 20.7 per cent of the total investment in Bolivia. The cost of a low investment rate is slow growth, paradoxically in a context of high prices of raw materials.

The full Spanish report can be found below:

Coy 150 – Nuevo ciclo de estatizaciones[1]

Milenio Foundation’s conclusions reflect Bolivia lost the best possible alternative ever to capture more foreign capital and create industries that would generate the long-needed employment. Not only have we not drilled out more natural-gas, nor have we increased our export capacity; let alone the supply needed in energy sources to boost projects like El Mutun. Bolivia has also generated a hole in our food security when current government started to control food exports. Both hydrocarbons and food are imported now. There is very little evidence that foreign investment wishes to come to Bolivia, and chances are international prices of our commodities will go down and we are not prepared…