Astrid Hasfura writes in Frontera News:
Bolivia’s New Mining Laws and The Future of Private Investment
New changes in the mining sector may grant Bolivia further control of the country’s extractive industries, but increasing public expenditures and decreased oil revenues may force the government to open up new opportunities for private investment after all.
Since taking office in 2006, the President of Bolivia, Evo Morales, went on to quickly nationalize several sectors of the economy. His intent has always been to strengthen state control, in order to grant Bolivia more economic freedom and lessen dependence on international donors and organizations, such as the IMF and World Bank. Along with other regional leaders, Morales forms part of Latin America’s Pink Tide; which touts 21st century socialist policies. Said policies have included the creation of new laws on hydrocarbons (Ley de Hidrocarburos) and reforms in various productive sectors, leading to a series of expropriations in the first years of the Morales administration.
Bolivia’s new mining laws
This past August, Morales approved changes to the Ley de Minería y Metalurgia (Law on Mining and Metallurgy). The government entity that controls the mining sector, Corporación Minera de Bolivia (Comibol), already controls 39% of all mining operations, and these new changes could grant it even more power. Along with this law, there have also been recent changes in the Law on Cooperatives which, amongst other things, set more limits on cooperative miners seeking to enter into contracts with private mining companies. Increased state control over extractive industries has already threatened the interests of private corporations operating in Bolivia; nevertheless, continuing low oil prices and the increasing public works investments of the Morales government may alter the government’s approach to private and foreign investment, especially in the mining sector.
Public expenditures and private investment
In December 2015, Morales approved a budget of $48 billion for infrastructure and energy development over the next five years. Similarly, last week, Morales vowed to invest $2.8 billion on highway and other infrastructure projects in the region of Cochabamba. Cochabamba is home to a variety of natural resources that the government depends. Such a large investment for Cochabamba signifies further government interest in controlling these sectors; however, Morales’ continuously high levels of government expenditure are already being threatened by low oil prices.
For a nation dependent on oil revenues (oil rents constituted nearly 6% of Bolivia’s GDP as of 2012), the low oil prices of the past two years may force the government to rethink its stance on private sector investment, especially in the extractive sector.
Despite the aforementioned legal changes pertaining to the mining sector, Bolivia has continued to try to attract foreign private investment into the country. In June 2016, at a UK-Bolivia trade and investment forum in London, the minister on mining and metallurgy referred to a new set of safeguards to protect foreign investors in Bolivia. Likewise, Bolivia’s Attorney General, Héctor Arce, stated last year that investors should expect no further nationalizations in the future.
This promise comes in spite of the fact that the many nationalizations that occurred at the start of Morales’ administration did bring a lot of revenue to the government, they also had a significantly negative impact on foreign direct investment in Bolivia.
Until the justice system of Bolivia can guarantee the rights of foreign investors in the Andean nation, uncertainty and fear may still limit private investment in Bolivia. However, considering the impact of low oil revenues on the government’s public expenditure budget, we may see a change in Morales’ approach towards private investment, and an attempt to create a more hospitable climate for investors.
It is hard for foreigners (and foreign businesses) to breath in the rarified air of Bolivia, so any breathing space in the works from the Bolivian government will be a welcome reprieve.
Astrid Hasfura Dada is an Analyst at Global Risk Insights.