While Bolivia may be far from the first choice for investors in Latin America, as President Evo Morales settles in for his third term in office, there are signs that changes are afoot. With new investment legislation and a promise of no more expropriations from the president, could this resource-rich country be altering its approach, asks Eleanor Wragg.


Tiny and impoverished yet rich in vast natural resources, Bolivia is a land of many contrasts – and contradictions. While president Evo Morales’ reign thus far has been characterised by bellicose anti-capitalist rhetoric and a near-constant stream of expropriations of foreign-owned companies, money has nonetheless poured into the country: foreign investment reached an unprecedented peak of US$1.75bn in 2013, a year in which GDP growth hit 6.5%. Now, following his landslide election victory to a third term, there are signs that Morales might be softening his stance towards international investors.

So far, investors in the country have not had an easy ride. Since Morales took power in 2006, he has practically turned expropriation into a sport. Taking lessons from his late ally Hugo Chavez – to whom he dedicated his recent election victory – he has nationalised utilities, airports, mines and telecoms companies. Hardest hit were firms from former colonial power Spain: Iberdrola and Red Electrica lost their electricity interests, while their compatriots Abertis and AENA lost their stakes in Bolivia’s airports, upsetting both the Spanish investment community and the Spanish government. But Spanish firms weren’t the only ones: global commodities firm Glencore lost control of its tin and zinc mine there in 2012, saying at the time in a sharply-worded statement that the action posed “a number of serious questions relating to the government’s future policy towards foreign investment”.

Unlike some of his more ideological neighbours, however, Morales never closed the door entirely on international business.

“Over these past years Evo Morales has had a dual discourse,” points out Paola Muller, senior economist at IHS. “He has displayed a very ideological discourse against foreign investment, but at the same time demonstrated very pragmatic behaviour towards it. Even though he has nationalised the hydrocarbon sector, electricity and telecommunications, he has been able to maintain some partnerships with major international companies.”

In previous years, strong revenue flows from oil and commodities propped up the government’s spending needs, almost negating the need for foreign money. Indeed, the country’s foreign reserves as a proportion of GDP, at more than 48%, are higher than those of China. However, commodity prices have now fallen and if Morales is to continue driving the country along its path of development, he will need to lure in investors. In a well-received announcement following the October elections, the president promised that there would be no further nationalisations in the hydrocarbon, mining and banking sectors. “It appears that the government is no longer interested in nationalising whole sectors,” says Arthur Dhont, country analyst for IHS, although he concedes that this is because it has already nationalised the sectors it deems strategic. “Pressure from interest groups, such as mining co-operatives and mining unions, will however perpetuate the risk of ad hoc expropriation and other forms of government intervention.” Could this be the beginning of a new era for Bolivia?

A fresh approach

“The country has positively changed,” says Roberto Calzadilla, ambassador of Bolivia to the UK. “There is a new social climate and understanding. The government of Bolivia and the policies of Evo Morales are very progressive and the economy has tripled during the last eight years. We respect private property under our constitutional terms and we have a new investment law which welcomes foreigners.”

This new law came into force in April, and clarifies the investment framework. The government hopes that it will go some way to offset the deterrent effect of the nationalisations.

At a meeting in 2011 to discuss the future law with her Bolivian counterpart David Choquehuanca, Spain’s former foreign minister Trinidad Jimenez concluded that Spanish investors and companies
would have “no reason for any kind of fear,” adding that the law would provide “certainty and security”.

For his part, however, Choquehuanca warned that Bolivia only wants “partners who can help us emerge from poverty”, a view echoed by Calzadilla. “We had some bad experiences in recent years,” says the ambassador.

“Companies who are here for speculation purposes are not welcome. We would like to have partners, not bosses.”

But what does this mean for investors? IHS’s Dhont, who visited the country in 2014, observed that the government is aware that it has a negative reputation when it comes to foreign investment and believes that it wants to address this. “The investment law aims at tidying up the investment regime and making the rules clearer,” he says. “The rules aren’t any more favourable for foreign investors; they’re just slightly more set in stone than they were, addressing the legal uncertainty which has always been one of the big issues in Bolivia. There’s a new mining law, which was the big ticket item which passed just before the election, and in the pipeline there is also a new arbitration law.”

The arbitration law is keenly anticipated by investors, given that Morales pulled Bolivia out of the World Bank’s arbitration body International Centre for Settlement of Investment Disputes (ICSID) in 2007, making it the first country to do so. Since then, the country’s 2009 constitution established that domestic investment has priority over foreign investment, and subjected foreign investment to Bolivian jurisdiction, laws and authorities exclusively – a worry in a country where the judiciary can be at best described as “vulnerable to politicisation”.

“Even though the Bolivian government can say it is going to be much friendlier towards investment, the true problem is that there has been a weakening of the institutional environment,” says Muller. “The central bank is no longer an independent entity. All the judges are from the same political party as Evo Morales. There is a high percentage of people that don’t trust the judiciary and that is a huge institutional weakness.”

It is hoped, however, that the new arbitration law will at least impose a lower limit on the timeframe for proceedings – until now companies have seen payment delays of up to five years or more.

So far, there are small, positive indicators that Bolivia is moving in the right direction. “Earlier in 2014 we saw the suspension of import tariffs for heavy machinery for mining,” says Dhont. “It’s little gestures like that which are going to improve the business environment and suggest that the government has finally started realising that it needs to create a good operating environment.”

All of the ingredients are there for Bolivia to become a success story, if it gets the balance right. Figures from the Centre for Economic and Policy Research (CEPR) show the nation’s economy has grown faster under Morales than in any other period in the past 35 years. Poverty has fallen by 25% and the inflation-adjusted minimum wage has increased by almost 90%, while spending on social programmes and infrastructure development projects has seen Bolivia praised by Alicia Barcena, head of the Economic Commission on Latin America and the Caribbean (ECLAC), as being “one of the few countries that has reduced inequality. The gap between rich and poor has been hugely narrowed”.

This social and political progress was further bolstered in 2009, when Morales changed the constitution to formalise the concept of a plurinational state, explicitly recognising Bolivia’s multi-ethnic character.

“Investors want to see lower inequality and stability,” says ambassador Calzadilla. “We have a country which has both economic stability and political stability. Political support for Evo Morales has increased to 61%, with a majority even in the Media Luna departments [the site of political unrest in 2008] such as Santa Cruz.”

Open for business

Somewhat counterintuitively, Bolivia has shown that hostile gestures and nationalisations are not the anathema to international investment that one might assume: in fact, last year, the country pulled in the highest level of FDI as a percentage of GDP in all of South America.

“I saw very strong signals that the government was open for business,” explains Dhont. “The two groups who are going to be most favoured are those who can develop assets quickly, and those who can tie into the government’s 2025 bicentennial development plan which focuses on moving Bolivia’s economy away from raw material extraction towards value-added industrialisation.” He points to plastics production, mineral smelting and processing, food processing and petrochemicals as key sectors for investors. “Those
that come in and support these kinds of project will likely be seen very favourably by the government.”

But even with this new goodwill towards investors, Bolivia has a hard slog ahead of it if it is to compete with its neighbours for foreign money. Ranking 157th out of 189 economies in the World Bank’s Doing Business report, it is light years behind other, more business-friendly, jurisdictions in the region. “The time you need to open a business is too high, there’s a lot of red tape, and there’s a lot of uncertainty around the rules of the game. That will deter some investors from coming to Bolivia,” says Muller. “Of course there are the natural resources. There is lithium, there is gas, and so on. But Bolivia is not a unique investment destination in the region, so investors will look for the country that offers the best conditions. There is oil in Colombia and gas in Peru too.”

One glaring risk is around taxation.

Already ranked bottom in the world on the Doing Business “paying taxes” indicator, there is little visibility around Bolivia’s future tax regime. “Evo Morales knows that he will have to start to manage the economy with less money. He will eventually need to raise taxes if he needs more money, and therefore will not currently commit to a stable tax regime,” points out Muller.

But despite all the issues, and there are many, Bolivia knows it needs investors, and investors are keen to come to the country to take advantage of its multiple opportunities. “With the gas and lithium, we see Bolivia becoming an energy hub in the Southern Cone region,” says ambassador Calzadilla, who says his government welcomes investment in agribusiness and mining. He also calls for participation with the Bolivian steel company El Mutun, which is considering the implantation of direct contracts with private companies to build plants for the industrialisation
of iron ore deposits in Santa Cruz.

Indeed, the core message from the Andean nation is that the Bolivian government, through new legislation and a slightly altered approach, is going to create opportunities for those who stick to its programme and who can bring industrialisation projects. And given the success of Bolivia’s first international bond in almost a century in 2012, which was around nine times oversubscribed despite offering a yield of less than 5%, investors seem convinced by the country’s strong growth potential. The journey to dispelling its image of being hostile to foreign capital is underway, and with Morales’ third term due to run until at least 2020, the country offers few surprises to those willing to try their luck in Evo’s Bolivia.