07.08.2019

Bolivia. While Venezuela is sinking into chaos, the fastest growing economy in South America is one that pursues a similar policy – with decisive differences.

A different way

Under the salt desert of Uyuni is perhaps the world's largest deposit of lithium - one of the most important raw materials for the production of electric batteries.

When the indigenous and former coca grower Evo Morales was elected as president of Bolivia in 2005, he took the same direction as Hugo Chavez, who had ruled Venezuela for several years: he nationalised important parts of the economy, above all the natural gas and mining industries, and financed large social programmes with raw material revenues. For several years, the two economies developed almost in parallel. But while Venezuela has fallen deeply today, Bolivia continues to enjoy growth rates of 4 percent and more year by year.

Cushion for bad times

Is it only a matter of time before Bolivia suffers a similar fate to Venezuela? "Rather not," says Austria's economic delegate Drazen Maloca, who also looks after the Bolivian market from Chile. "Bolivia's leading politicians act more intelligently and have learned from Venezuela's mistakes," says Maloca. A crucial difference is that Bolivia has always managed its budget in a disciplined manner: While Venezuela was in debt even with high commodity prices, Bolivia created a cushion of foreign exchange reserves for itself in good years. 

These reserves have been melting since 2014, reports Gerald Mayer, a country expert at OeKB: "Recently, however, they still amounted to over 7 billion US dollars, which corresponds to more than six months of import cover. Low gas prices over several years could also put Bolivia in distress, but a sharp drop in prices is not foreseeable, says economic delegate Maloca. "If neighbours Argentina and Brazil buy the gas, dynamic growth is predicted for the coming years as well.

The security situation and the low corporate tax rate of 25 percent are positive in a regional comparison.
Gerald Mayer, OeKB country expert

Laggards on a race to catch up

Bolivia started from a low level. Although the GDP per capita developed rapidly in the new millennium, it is still the lowest in South America and less than a quarter of that in Chile or Argentina. Morales himself also comes from poor backgrounds. In his childhood in the country, there was often nothing but maize porridge to eat. Later he made it through as a coca farmer – quite legally, because coca leaves are, as tea or chewed, a traditional remedy in Bolivia. Even today, many people live in subsistence farming, even if the severe poverty is decreasing.

A large part of the population lives in the Altiplano, a barren plateau that occupies the western half of the country. It is rich in raw materials, but otherwise offers hardly any economic opportunities. Commercial agriculture is concentrated on a few mountain valleys at medium altitudes and on the lowlands, especially around Santa Cruz, the country's largest city. In northern Bolivia there are tropical, barely developed rainforests; the dry and cooler southeast is also sparsely populated.

Railway expansion under consideration

The Andes, which cut through the country lengthwise, are a major obstacle for development. In order to reach the lowlands from the Altiplano at 4,000 metres above sea level, several passes have to be crossed. The country's railway network is therefore divided into two parts: One at the top, one at the bottom. A planned rail link that runs from Peru to Brazil and connects the Pacific with the Atlantic is Bolivia's most important infrastructure project.

  Did you know that ...

  • ... Bolivia, although it is a landlocked state, maintains a navy? It is stationed on Lake Titicaca and the big rivers.
  • ... good coexistence in harmony with nature (Pachamama), a central principle of the Andean peoples, is enshrined in the constitution as a state goal?
  • ... Coca is one of Bolivia's most important agricultural products even without the illegal cultivation of cocaine?

Gondolas through the city

The Austrian company Doppelmayr scored with an unconventional traffic solution for the difficult topography. El Alto, Bolivia's third largest city, is located directly on the edge of the Altiplano; La Paz, the seat of government and the country's second largest city, is immediately behind the geographical break-off edge. Buses are not a satisfying solution for passenger transport, a tram or subway is not an option due to the several hundred meters difference in altitude - that is why La Paz decided to build the world's largest urban cable car network. Several ropeway lines built by Doppelmayr are already in operation and the network will soon cover more than 30 kilometres.
 
In recent years, Doppelmayr's deliveries have also shaped the volume of trade between Bolivia and Austria. "Historically, Austria has exported goods worth around 20 million euros to Bolivia every year; by 2017 it was over 140 million," reports economic delegate Drazen Maloca. In the other direction, the flow of goods remained poor: most recently, quinoa, Brazil nuts and ores were exported to Austria.
 

Health for all

From an Austrian point of view, another hospital project of the Vamed company with 200 beds in Villa Turani at the foot of the Andes is worth mentioning. It is part of a major reform to provide free health care for the entire population starting this year. Maloca also sees opportunities for Austrian exporters in the project business and does not expect a strong increase in trade: "Bolivia will not become a market where one has to be, in the foreseeable future. However, if the country succeeds in advancing its industrialisation, it could become interesting for machine exports. This already applies to Chile."

"Put on the Bolivian shirt"

Doppelmayr's Julia Schwärzler reports on the project that has shaped Austria's trade relations with Bolivia for years.

How did you come to build the world's largest urban cable car network in La Paz?
The idea has been around for 30 years, because the height differences in the city are huge – we speak of up to 1000 meters. Threatened by traffic collapse, the Bolivian government in 2012 fully committed to this innovative solution.

Is the network now finished?
In March 2019, the tenth – and for the time being – last line was put into operation, the "Línea Plateada". Recently, the Bolivian president has announced an enlargement phase. The exact launch date is not fixed yet.

What experiences did you make in Bolivia?
Actually, we were surprised how fast the implementation kicked off. The project team on site already got off to a flying start when the project office in La Paz did not even have a worktable. Thus, we have managed to hand over the first cable car line, the "Línea Roja", within 14 months of signing the contract.

What advice do you have for Austrian companies?
A key factor for success is an understanding of the local conditions. As a foreign company you have to manage to "put on the Bolivian shirt", as they say in Bolivia.

Historically, Austria has exported goods worth around 20 million euros to Bolivia every year. By 2017 it was over 140 Million.
Drazen Maloca, economic delegate

Investors are suspicious

There's still a long way to go. In location indices such as the Doing Business Index, Bolivia is far behind in almost all aspects from infrastructure to corruption. "Even Chile is struggling to attract investors, having a history of many decades of liberal economic policy," says Maloca. "For Bolivia, it is even more difficult, because it has nationalised companies in the past. Mayer of OeKB also confirms that factors such as the lack of legal certainty and the excessive bureaucracy deter investors. "However, the security situation and the low corporate tax rate of 25 percent are positive in a regional comparison," he says. Bolivia can also score points with its low wage level.
 
Foreign investors would urgently need Bolivia to continue processing its raw materials in the country. Not only those that are already being promoted, but also one that has not been developed yet, but represents a great treasure: Lithium. The salt desert of Uyuni is perhaps the largest deposit of this element, whose demand is growing rapidly because it is needed for batteries of electric cars. "There is a mining project, but investors have to be found first," Maloca reports.
 

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  • Infrastructure
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No end in sight

Whether Morales will still experience the lithium extraction as president will be decided in autumn. Then he will run for re-election for the third time, even though it is actually forbidden by the constitution. But the Constitutional Court declared the passage null and void a few months ago, arguing that the right to vote should not be curtailed by restrictions on terms of office. Protests were the result. But after the controversial decision, the chances of re-election are good, especially as the opposition is fragmented into several camps.

Bolivia in numbers*

  • Population: 11.1 million
  • Human Development Index: Rank 97 (out of 188)
  • Birth rate: 2.9 children / woman
  • Life expectancy: 69.1 years
  • GDP growth 2017: 4.2%
  • GDP is absolutely: 37.8 billion US $
  • GDP per capita: 3,413 US $
  • Inflation: 2.8%
  • Exports: 7.8 billion US $
  • Imports: 9.3 billion US $

  History in a nutshell: In the beginning there was the Lama

The highlands of Bolivia have been inhabited for thousands of years. The Stone Age hunters and gatherers first became nomadic lama herders and later settled down. From one of several advanced civilizations, that of Tiwanaku (about 1500 B.C. to 1200 A.D.), probably the ethnic group of the Aymara descends, to which about a third of the Bolivian population can be attributed. Another large ethnic group, the Quechua, goes back to the rule of the Inca coming from Peru, which ended abruptly with the conquest by Spain's Francisco Pizarro in 1538. The Spanish were expelled only in 1824 with the help of the independence fighter Simon Bolivar, who became the namesake. Soon there were several revolutions and wars against the neighbouring states. The defeat against Chile in 1884, which cost Bolivia its access to the sea, is significant. Not even the 20th century brought political stability. In the bloody Chaco War (1932-1935) over a deserted region where oil was suspected (wrongly), Bolivia was also defeated by Paraguay. After numerous coups d'état and putsches, it was not until the 1980s that democracy began to establish itself permanently.

*source: WKO

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