Country risks for investors operating in Bolivia

31 May 2019

Country risks for investors operating in Bolivia Disruptive strikes and protests are likely to occur in the run-up to the October 2019 general election, affecting both the public and private sectors, including mining and cargo transport. However, President Evo Morales remains a popular, leftist leader and the favourite for re-election.

Security Environment

Strikes and protests will intensify in the run-up to the general election in October 2019. Protests are likely to block major highways near the seat of government in La Paz and in central Santa Cruz, Cochabamba and Potosí cities.

Bolivia has a strong tradition of union militancy in its mining industry and labour organisations retain substantial capacity to mobilise supporters.

Assassination and injury risk are rare. However during demonstrations by mining cooperatives in August 2016, Deputy Interior Minister Rodolfo Illanes and his bodyguard were captured by protestors and beaten to death in Panduro, 150km south of La Paz.

Protests by coca farmers opposed to coca eradication polices have set up roadblocks and assaulted state security forces in the Yungas region of La Paz as recently as March 2019.

Property damage risks, including arson and looting are high for both public and private businesses.

Country risks for investors operating in Bolivia On 11 December 2018, protesters set fire to the Tribunal Electoral Department and Civil Service Register Service, destroyed computers at the National Tax Office and looted the offices of the state-owned telecommunications firm.

The Bolivian National Police force is likely to be substantially weakened in the six-month outlook following a wide-scale anticorruption investigation into institutionalised links between high-ranking police officials and organised crime.

Crime rates and sporadic drug-trafficking related violence will increase in light of reduced policing capacity.

Trading Environment

After a decade of strong export-driven growth, real GDP will moderate to 4.1% in 2019 and 3.7% in 2020, down from 4.8% in 2018. Bolivia’s fiscal health remains heavily dependent on hydrocarbons exports, which account for 44% of total export earnings.

Foreign investment in the natural gas sector is strong, with US$2.5 billion of investment in upstream exploration scheduled for 2019. However, competition from domestic suppliers in Brazil will weaken regional demand over the long-term outlook. Expansionary macro-economic policies, spurred on by the decline in global commodity prices since 2014, have resulted in large fiscal and current account deficits and a loss of hard currency reserves.

Political uncertainty related to the October 2019 election presents the most challenging risk for investors. A change in the overall business environment would trigger a decrease in Foreign Direct Investment (FDI) levels.

Foreign currency reserves stand at approximately USD 9.1 billion (approximately 8.6 months of import cover) – down from USD 15.1 billion in 2014. Unless FDI levels accelerate sharply in 2019, the government will finance the twin deficits by continuing to draw on depleted foreign currency reserves. The current level of foreign exchange reserves will be unable to support the Boliviano’s peg to the US dollar post-2020, increasing pressure to float the currency.

Investment Environment

Pricing outlook website BoliviaExpropriation and nationalisation risks are likely to persist for foreign mining companies in the one-year outlook. Morales’ government retains tight control over the mining industry, preferring to award contracts for industrial and public works contracts directly.

The lack of transparency has limited the production role of foreign mining companies over the last decade. In 2016, the Bolivian government issued five new mining decrees in response to escalating violence and protests at the Colquiri tin-zinc mine.

The decrees include a directive to revert inactive or privately operated mining concessions back to state control. A Swiss-based mining and trading multinational is involved in arbitration proceedings against the Bolivian government over the nationalisation of its assets in 2016.

However, Bolivia is not a signatory to the International Centre for the Settlement of Investment Disputes (ICSID), reducing international arbitration options.

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5 Key Takeaways

  • Strikes and protests blocking highways in La Paz and Santa Cruz will intensify in the run-up to the general election in October 2019
  • Foreign currency reserves stand at approximately USD 9.1 billion (approximately 8.6 months of import cover)
  • Real GDP will moderate to 4.1% in 2019 and 3.7% in 2020, down from 4.8% in 2018
  • Property damage risks, including arson and looting are high for both public and private businesses
  • Expropriation and nationalisation risks are likely to persist for foreign mining companies in the one-year outlook.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Pakistan, Turkey, Ukraine, and Maldives all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.

    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)121 626 7837.

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