Economy of Bolivia

Bolivia's 2016 gross domestic product referred to PPP totaled $78.35 billion and in the official exchange $35.69 billion. Its standard of living, as measured in GDP in PPP per capita was US$7,191. Economic growth was about 5.2% a year and inflation was 4.5% in 2012. Bolivia experienced a budget surplus of about 1.5% of GDP in 2012. Expenditures were nearly US$12.2 billion while revenues amounted to about US$12.6 billion. The government runs surplus accounts since 2005.

The Bolivian currency is the boliviano (ISO 4217: BOB; symbol: Bs.) One boliviano is divided into 100 centavos. The boliviano replaced the Bolivian peso at a rate of one million to one in 1987 after many years of rampant inflation. At that time, 1 new boliviano was roughly equivalent to 1 U.S. dollar. At the end of 2011 the boliviano was only worth around 0.145 U.S. Dollar.[28] Annual interest rates in 2010 had decreased steadily to 9.9 percent[18] from more than 50 percent before 1997.

Bolivia's human development index was reported at 0.675, comprising a health index of 0.740, an education index of 0.743 and a GNI index of 0.530, ranking within the group of medium human development. "Between 1980 and 2012 Bolivia (Plurinational State of)'s HDI rose by 1.3% annually from 0.489 to 0.675 today, which gives the country a rank of 108 out of 187 countries with comparable data. The HDI of Latin America and the Caribbean as a region increased from 0.574 in 1980 to 0.741 today, placing Bolivia (Plurinational State of) below the regional average."[29]

The following table shows the main economic indicators in 1980–2017.[30]

Agriculture and forestry gross domestic product (GDP) in 2003, down from 28 percent in 1986. Combined, these activities employ nearly 44 percent of Bolivia's workers. Most agricultural workers are engaged in subsistence farming—the dominant economic activity of the highlands region. Agricultural production in Bolivia is complicated by both the country's topography and climate. High elevations make farming difficult, as do the El Niño weather patterns and seasonal flooding. Bolivia's agricultural GDP continues to rise but has attained only a rather modest average growth rate of 2.8 percent annually since 1991.

Bolivia's most lucrative agricultural product continues to be coca, of which Bolivia is currently the world's third largest cultivator after Colombia and Peru, with an estimated 29,500 hectares under cultivation in 2007, slightly higher than the previous year. Bolivia is the third-largest producer of cocaine, a drug produced from coca, estimated at 120 metric tons potential pure cocaine in 2007 and a transit country for Peruvian and Colombian cocaine destined illegally for the U.S., Europe, Brazil, Argentina, Chile, and Paraguay. The Bolivian government, in response to international pressure, worked to restrict coca cultivation. However, eradication efforts have been hampered by the lack of a suitable replacement crop for rural communities that have cultivated coca for generations. The Morales government turned back some of the results obtained in previous years.

Since 2001 Bolivia's leading legal agricultural export has been soybeans. Additionally, cotton, coffee, and sugarcane have been viable exports for Bolivia. For domestic consumption, corn, wheat, and potatoes are the crops of choice of Bolivian farmers. Despite its vast forests, Bolivia has only a minor timber industry. In 2003 timber accounted for only 3.5 percent of export earnings. The Forestry Law of 1996 imposed a tax on sawn lumber and consequently cut Bolivian lumber exports significantly. The tax was used to establish the Forestry Stewardship Council, which has been only minimally successful in forest restoration efforts and eliminating illegal logging. With increased efficiency, Bolivia could likely expand the profitability of its forest resources, while still protecting them from overexploitation. Bolivia has a small fishing industry that taps the country's freshwater lakes and streams. The annual catch averages about 6,000 tons.[21]

Agriculture and forestry is also the lifeline for multitudes of small villages which house a majority of the population. Small village economy stumbled and dwindled from the late twentieth century due to aggravating environmental problems including deforestation and consequent soil degradation,[31] water pollution, loss of biodiversity, and so on. Besides, political and social problems also greatly obstruct the growth of small village development: political turmoil, post-civil war predicament and burgeoning fiscal deficit have strangled most investment incentives;[32] corruption and manipulation of water supply by foreign companies have greatly undermined the availability and efficiency of local market, leaving little profits for village farmers and producers.[33] Furthermore, the global market poses a threat to the stability and sustainability of Bolivia's frail economy: "a drop in export prices, reduction of informal trade" and low-skilled over-homogenized local products have further worsened the bleak condition of Bolivia's microeconomic activities, making it almost impossible for village farms and factories to make a living from trading with the world.[34] Dwindling profits and surging cost of production have made small village economy in Bolivia extremely vulnerable and unstable; as a result, unemployment increases and small business is on the verge of bankruptcy, which in return made government intervention very inefficient and deferred many governmental initiatives and attempts to improve the condition.

"Map of Bolivia, Showing Forest and Agriculture Areas, and Mineral Localities" from 1912

Mining continues to be vital to Bolivia's economy. The collapse of the world tin market in the 1980s led to a restructuring of the industry. The state dramatically reduced its control and presently operates only a small portion of mining activities. Small-scale operations, often with low productivity, employ many former state miners. Natural gas has supplanted tin and silver as the country's most valuable natural commodity. A discovery in 1997 confirmed a tenfold gain in Bolivia's known natural gas reserves. Finding markets to utilize this resource, both domestically and internationally, has been slowed by a lack of infrastructure and conflicts over the state's role in controlling natural resources. Although the world tin market has re-emerged, Bolivia now faces stiff competition from Southeast African countries producing lower-cost alluvial tin. Gold and silver production has increased dramatically over the past decade. Annually, as of 2002 Bolivia extracted and exported more than 11,000 kilograms of gold and 461 tons of silver. Additionally, Bolivia has increased zinc production, extracting more than 100,000 tons each year. Other metals excavated include antimony, iron, and tungsten.[21]

According to the United States Geological Survey, Bolivia has 9 million tons of lithium,[35] which can be used to make lithium batteries, used in hybrid and electric vehicles in addition to huge numbers of smaller batteries.[36] At 14.5%, this is the second-largest known concentration of lithium in any country; Argentina has 14.8 million known tons of lithium, Chile has 8.5 million tons, Australia has 7.7 million tons, and the United States has 6.8 million tons.[35] These large deposits are located in desert regions farmed by indigenous groups, who claim their share of the profits made from their natural resources.[36] Bolivian President Evo Morales favored national, rather than foreign, ownership of natural resources, and nationalized the country's oil and natural gas reserves.[36]

Mining the mineral deposits would involve disturbing the country's salt flats (called Salar de Uyuni), an important natural feature which boosts tourism in the region. The government does not want to destroy this unique natural landscape to meet the rising world demand for lithium.[37]

In January 2013 Bolivia opened a lithium production plant in Uyuni, producing mainly potassium chloride.[38][39] Also, the Bolivian government signed intentions to develop not only lithium extraction but also lithium-ion battery production with numerous countries, especially from the Asia Pacific region.

Annually, manufacturing has accounted for in between 14 and 15 percent of Bolivia's gross domestic product. The share of industry as a whole (including the mining industry) to the GDP increased from 30 percent in 2000 to 37,3 percent in 2010. Most industry is a small-scale, aimed at regional markets rather than national operations. Inadequate credit options and competition from the black market have kept Bolivia's manufacturing sector from developing fully. Leading manufactured goods in Bolivia include textiles, clothing, non-durable consumer goods, processed soya, refined metals, and refined petroleum.[21]

Processing of food, beverages and tobacco is the biggest sector within the manufacturing industry (39% in 2001[18]). This sector occupies a prominent place in the manufacturing industry that is continually growing, both in production and number of businesses and jobs. In 2010 its share in exports was about 14%. Especially the soybean and its derivatives reached very large export markets in recent years. The largest factories producing soybeans, sunflower seeds, cotton and sugar from sugar cane, are mainly situated in Santa Cruz, although a large edible oil refineries operate in Cochabamba. All major cities have at least one brewery, one or more soft drink bottling plants, and one or more packaging plants for canned food.

The textiles industry was the second largest manufacturing sector after the food industry in the 1970s and was of decreasing importance afterwards, representing progressively diminishing value of total manufacturing. But since the 1990s the textile industry has increased its growth rate. The cotton and wool industry declined at the expense of synthetic fibers. The largest concentration of textile mills are to be found in La Paz, but also in Santa Cruz and Cochabamba and to a lesser extent in Oruro.

Another important industry is the oil refining industry.

The services industry in Bolivia remains undeveloped. Inhabiting one of the poorest countries in South America, Bolivians have weak purchasing power. The retail sector suffers from weak demand and competition with a large black market of contraband goods. U.S. companies such as McDonald's and Domino's have pulled out of Bolivia in recent years.[21]

Banking in Bolivia has long suffered from corruption and weak regulation. However, a series of reforms initiated by the 1993 Banking Law and subsequent acts are gradually improving Bolivia's banking sector. Bolivia has a central bank and nine private banks. Consolidation occurred following reforms, lowering the number of private banks in Bolivia from 14 in 1995 to nine in 2003. Foreign participation and investment in Bolivian banks are allowed. About 90 percent of Bolivian bank deposits are held in U.S. dollars. The Bolivian government is trying to change this situation by taxing dollarized accounts while exempting boliviano accounts from the tax. As recently as 2002, 27 percent of all loans were non-performing, leading most foreign investors to focus their resources in the somewhat-safer venue of corporate lending. Most bank lending in 2003 went to manufacturing (24 percent), followed by property services (18 percent) and trade and retail (16 percent). Bad debt remains at a historically high level. Further reforms are necessary, including the pending act to introduce a deposit guarantee system. Bolivia's stock market expanded in 1998 to include corporate bonds, along with the money market and government bond options that had existed previously. The privatization of Bolivia's social security program has bolstered the stock market.[21]

Bolivia's spectacular vistas and natural attractions have not been enough to transform the country into a major tourist destination because of its political instability and lack of first-class accommodations. Still, Bolivia's tourist industry has grown gradually over the past 15 years. In 2000 Bolivia attracted 306,000 tourists, compared with 254,000 in 1990. Tourist revenue peaked at US$179 million in 1999. Tourism in Bolivia declined following the 11 September 2001 attack on the United States, as was the case across North and South America. Since from 2001 the tourism sector, however, is strongly increasing, in fact in 2018 the number of tourists reached 1.142,000 arrivals.[40]

Bolivia's energy needs are relatively small but growing consistently. Bolivia uses oil for the majority of its power needs, followed by natural gas and hydroelectric power.

Bolivia has estimated oil reserves of 441 million barrels (70,100,000 m³), the fifth largest in South America. The fields are located in the east and south. The main activities in the refineries is crude oil fractioning, catalytic conversion for high octane gasoline, and refining of heavy fractions to produce lubricants. The final products are vehicle gasoline, liquid propane and butane, jet fuel, diesel oil and lubricants for use in industrial machinery. As domestic oil production is insufficient to meet domestic demand Bolivia is a net importer of oil.[41]

Until recently the country's oil industry was fully controlled by the state company YPFB, established in 1936 with the mission to develop, refine and distribute oil resources. After privatization efforts in the 1990s the transport of natural gas and oil was in private hands during the 1990s while the production and refining of materials was part of risk-sharing contracts between the government and private investors. In 1999 the refinaries were also completely privatized. In May 2006 president Evo Morales re-nationalized reserves, while its exploitation remained in private hands.

The country's natural gas reserves total 27.6 trillion cubic feet (780 km³) according to Bolivian government figures, ranking Bolivia behind only Venezuela in terms of proven natural gas reserves in South America. Additionally, Bolivia is self-sufficient in its electricity production.[21] The sector changed significantly when the government allowed privatization in the mid-1990s. International companies quickly invested in Bolivian energy sources, particularly in natural gas, and made Bolivia into a player in the world energy market. The exportation of Bolivian energy resources, while potentially lucrative economically, has been politically hazardous. President Gonzalo Sánchez de Lozada ultimately resigned over his plan to export natural gas to the United States and Mexico in 2003.

On 6 June 2005, former president Carlos Mesa offered his resignation to the Bolivian Congress after months of demonstrations by Bolivia's indigenous population calling for renationalizing the natural gas and oil sectors. Mesa had increased taxation on foreign companies while still encouraging their investment in Bolivian energy development. On 1 May 2006, his successor, current president Morales, signed a decree stating that all natural gas reserves were to be nationalized, recovering ownership, possession and control of hydrocarbons. US Exxon Mobil Corporation, Petrobras, Spain's Repsol YPF, UK gas and oil producer BG Group Plc, and France's Total are the main gas companies present in the country.

Until 1994 the electricity sector was dominated by the vertically integrated public utility ENDE (Empresa Nacional de Electricidad). In 1994 the electricity sector was privatized and was unbundled into generation, transmission and distribution. The law aimed to increase efficiency in the sector, promote competition and encourage investment.[42]

The supply is dominated by thermal generation (60%), while hydropower (40%) has a smaller share in its generation mix compared to other South American countries (Latin America and the Caribbean, or LAC, average hydropower capacity is 51%).[43] The electricity coverage in rural areas is with 30%[44] among the lowest in Latin America and improving it represents a major challenge in the future and requires the joint efforts from both the public and private sectors. Like in other countries, Bolivia's electricity sector consists of a National Interconnected System (SIN) and off-grid systems (known as the Aislado).

Bolivia's trade with neighboring countries is growing, in part because of several regional preferential trade agreements it has negotiated. Bolivia was a founding member of the Andean Group, a South American organization designed to promote trade among Brazil, Colombia, Ecuador, Peru, Argentina, the United States, and Venezuela. Subsequently renamed the Andean Community of Nations, the organization has succeeded in increasing intra-South American trade. Trade among member countries rose from US$3.6 billion in 1991 to US$10.3 billion in 2003. Bolivia also belongs to the Common Market of the South (Mercado Común del Sur—Mercosur). Bolivia became an associate member in March 1997 to open investment opportunities with the founding Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay), as well as other Mercosur associate members (Chile, Colombia, Ecuador, Peru, and Venezuela). The agreement provides for the gradual creation of a free trade area covering at least 80% of the trade between the parties over a 10-year period, though economic crises in the region have derailed progress at integration. The U.S. Andean Trade Preference and Drug Enforcement Act (ATPDEA) allows (allowed?) numerous Bolivian products to enter the United States free of duty on a unilateral basis, including alpaca and llama products and, subject to a quota, cotton textiles. Bolivia conducted more than US$1 billion in trade with Mercosur countries in 2003. As a result of negotiations initiated in 1999 on a possible South American Free Trade Area (SAFTA), Mercosur and the Andean Community of Nations announced in December 2004 that they would merge, creating a Union of South American Nations modeled after the European Union.[21]

Exports rose by more than 30% between 2010 and 2011 to $9.1 billion, due mostly to increased commodity prices, not increased volume. In 2011, Bolivia's top export products were: crude and refined hydrocarbons (44.9% of total exports), minerals and metals (26.7%), manufactured and semi-manufactured goods (24.7%), and agricultural products (3.7%). Bolivia's trade with neighboring countries is growing, in part because of several regional preferential trade agreements. Bolivia's top trading partners in 2011 in terms of exports were Brazil (33%), Argentina (11%), United States (10%), Japan (6%), Peru (5%), South Korea (5%), Belgium (4%), China (3%), and Venezuela (3%).

Bolivian tariffs are low; however, manufacturers complain that the tax-rebate program that allows some companies to claim refunds of import taxes on capital equipment is inefficient, with many companies now owed millions of dollars by the Bolivian Government, which can take years to recover.

From 2010 to 2011, Bolivian imports rose by 41% to a total of $7.6 billion. Bolivia imports many industrial supplies and inputs such as replacement parts, chemicals, software, and other production items (31% of total imports), capital goods (21%), fuel (13%), and consumer goods (10%). Top import products within these categories were machinery and mechanical appliances (17% of total imports), chemical products (14%), fuels and oils (14%), vehicles (13%), minerals (8%), and food (7%). Bolivia also imports significant quantities of steel, electrical machinery equipment and parts, and plastics and plastic products.

Bolivian imports of goods and services were valued at about US$5.3 billion in 2010. Bolivia enjoyed an estimated $1.6 billion trade surplus in 2010. By sector, Bolivia imported mostly intermediate goods, followed by industrial, capital, and consumer goods. Leading sources of Bolivian imports include Brazil, Argentina, the United States, and Chile.[21]

Bolivian exports of goods and services in 2010 stood at around US$7 billion compared with US$1.9 billion in 2003. Increased production of hydrocarbons, especially natural gas, led Bolivia's trade upturn in 2010. A 20-year supply contract with Brazil for natural gas, ending in 2019, the necessary capital to increase production. In 2004 export revenues for natural gas topped US$619 million. Bolivia also exported significant quantities of petroleum. Beyond hydrocarbons, other significant exports included zinc, soya, iron ore, and tin. In 2001 Brazil overtook the United States as Bolivia's primary export outlet. Switzerland, Venezuela, and Colombia are also important export partners. Bolivia has actively sought to foster economic connections in South America after long relying on the United States as its primary trade partner.[21]

The United States remains one of Bolivia's largest trading partners; however, it faded greatly on Brazil benefit in 2012. In 2002, the United States exported $283 million of merchandise to Bolivia and imported $162 million. Bolivia's major exports to the United States are tin, gold, jewelry, and wood products. Its major imports from the United States are computers, vehicles, wheat, and machinery. A Bilateral Investment Treaty between the United States and Bolivia came into effect in 2001,[21] however the Treaty was terminated by the government of Bolivia in 2012.[47]

By 2004 Bolivia had become the market leader in the export of brazil nuts,[48] with thousands of local people involved in collecting the pods in Bolivian Amazonia.[49]

Bolivia had an estimated trade surplus of more than US$1.6 billion in 2011. This figure represents a marked change in Bolivia's economic balance sheet. Bolivia reached a peak trade deficit of US$888 million in 1998 before increased hydrocarbon exports radically altered the situation.[21]

Bolivia had a large negative balance of payments for 2002⎯US$317 million. However, this situation has been remedied by the vast increase in export revenue. Estimates for the balance of payments for 2004 show a record surplus of US$126 million. Bolivia's external debt totaled an estimated US$5.7 billion in 2004. The International Monetary Fund has assisted Bolivia in paying down this debt. In 1995 the United States, among other countries, reduced Bolivia's debt by two-thirds.[21]

Foreign investment in Bolivia was buoyed in 1995 by privatization. Investment in mining and natural gas extraction increased, as did investment in the banking sector. However, the economic decline of the late 1990s, along with political unrest, caused foreign investors to pull out of Bolivia once again. In 2000 foreign investors contributed US$736 million to the Bolivian economy. In 2002 this total fell to US$676 million.

The Government of Bolivia remains heavily dependent on foreign assistance to finance development projects. At the end of 2002, the government owed $4.5 billion to its foreign creditors, with $1.6 billion of this amount owed to other governments and most of the balance owed to multilateral development banks. Most payments to other governments have been rescheduled on several occasions since 1987 through the Paris Club mechanism. External creditors have been willing to do this because the Bolivian Government has generally achieved the monetary targets set by International Monetary Fund programs since 1987, though economic problems in recent years have undercut Bolivia's normally good track record. Rescheduling agreements granted by the Paris Club have allowed the individual creditor countries to apply very soft terms to the rescheduled debt. As a result, some countries have forgiven substantial amounts of Bolivia's bilateral debt. The U.S. Government reached an agreement at the Paris Club meeting in December 1995 that reduced by 67% Bolivia's existing debt stock. The Bolivian Government continues to pay its debts to the multilateral development banks on time. Bolivia is a beneficiary of the Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC debt relief programs, which by agreement restricts Bolivia's access to new soft loans. Bolivia was one of three countries in the Western hemisphere selected for eligibility for the Millennium Challenge Account and is participating as an observer in free trade agreement negotiations. Bolivia enjoys some financial assistance programs run by the World Bank[50] and Microenterprise Development programs provided by Five Talents International[51]

In 2007, India's third-largest steel manufacturer, Jindal Steel and Power Limited, signed a contract with the Bolivian government to exploit the Mutun iron ore deposit, considered to be one of the largest in the world. According to the contract, Jindal would invest US$1.5 billion initially and an additional US$2.5 billion over the next eight years. This is the single largest investment by an Indian firm in Latin America.[52] Jindal Steel will set up an integrated 1.7 MTPA steel plant, a 6 MTPA sponge iron plant, a 10 MTPA iron ore pellet plant and a 450 MW power plant.[53] By September 2011, Jindal had obtained clearance for the project from the EIA and had hired an engineering consultant for FEED work.[53] The project is expected to create 6,000 jobs directly and another 15,000 indirectly.[54]

As of June 2011, Jindal had invested only US$20 million on the project due to considerable delay by Bolivian authorities in issuing land for the project and due to inability of the Bolivian government to commit 8 million cubic meters of natural gas per day for the power plant and ore smelting process.[55] In 2012 Jindal exited Bolivia, prompting Bolivia to seize the bond. In 2014, international arbitration awarded Jindal $22.5 Million due to Bolivia's seizure of the bond .[56]