Introduction: A Growing Nation

Bolivia is on a roll. The country has been growing faster than most of its neighbors in recent years and has made strides toward political and fiscal stability. GDP growth of 6.78% in 2013 was the highest in more than 30 years and in Latin America was surpassed only by Panama and Paraguay. Bolivia's growth rates are forecast to stay in the region's top ranks in 2014.

Steady economic expansion combined with reduced government debt and decreased dollarization of its financial system have led ratings agencies to improve their views on the country and allowed Bolivia to issue in 2012 its first sovereign bonds, and at low rates. A second bond issue came in 2013.

President Evo Morales, now in his third term, has achieved a level of political stability unthinkable a decade ago. During the early 2000s two presidents were forced to abandon office in mid-term due to civil unrest, which was in large part led by Morales himself.

The president has led the country in replacing neoliberal policies with the so-called new economic social communitarian and productive model, based on active state intervention in the economy, nationalization, industrialization, fiscal surplus, domestic savings, de-dollarization, income redistribution, social mobility and also pluralism, where the state, private sector, communities and cooperatives each has a role to play. Morales has also achieved significant reductions in poverty levels and increases in social spending.

What does all this mean for the local investment climate? While the charismatic Morales has been more pragmatic than many feared in balancing the demands of his more radical supporters and the country's more neoliberal factions, expropriations have become a way of life. The situation has given rise to a peculiar paradox whereby the government has gained positive international attention - accessing debt at prices much lower than "comparable" countries - yet many investors inside the country remain as or more fearful for the security of their assets as they would be in Venezuela, Ecuador or Argentina.

Even so, mining production has grown significantly, led by the private sector. Three major silver mines run by private transnational companies have started up since Morales became president in 2006, changing the productive landscape of the industry.

The state has also made impressive progress on its program of industrialization and added value in the minerals sector. Lithium battery production that seemed rather implausible a few years ago is now underway - however small-scale and behind schedule - and the startup of assets like the Karachipampa silver-lead smelter that languished for years under state and private owners are now symbols that show the new model is working.

It must be noted that the state-run industrialization process has been helped along by nationalization and companies abandoning contracts due to impossible government relations. But Bolivia has managed to do something that Venezuela hasn't: invest in and grow its nationalized assets. Venezuela's Sidor steel mill, nationalized in 2008, has been producing at about one-third of installed capacity and has been plagued by strikes. State oil company PDVSA has also seen production dwindle and national economic growth has been nonexistent.

In Bolivia steady investment in the nationalized hydrocarbons sector is a driving factor in GDP growth and solid gas sales contracts with neighboring countries a source of stability, while progress so far on mining and metals industrialization projects has been better than many expected.

"They've proven us wrong to a certain extent." says Katie Micklethwaite, Latin America analyst with Verisk Maplecroft. "Their success so far has been reasonably impressive and we can hope for more progress. Where there is more of a question mark is whether they will be as successful as government is hoping and saying it's going to be in fulfilling its longer-term objectives."

Figure 1: Bolivian, Regional and Global GDP Growth

Figure 2: Bolivian Minerals Exports in US$


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