Bolivia could face a critical economic situation if urgent reforms in the mining and hydrocarbon sectors are not...###

Bolivia could face a critical economic situation if urgent reforms in the mining and hydrocarbon sectors are not implemented, warned experts at the monthly forum hosted by ENERGÍABolivia magazine. They cautioned that inaction would not only maintain the current situation but exacerbate it.

ISSUE 136 | 2024

Vesna Marinkovic U.

The Bolivian economy is currently experiencing a crisis in both the hydrocarbon and mining sectors, according to experts who participated in the monthly forum of ENERGÍABolivia magazine. They emphasized that the gradual decline in hydrocarbon exports and the lack of investment in exploration have significantly impacted the performance of a sector that was once a key revenue source for the country. They suggested that Bolivia now needs to shift its focus to the mining sector.

Jaime Villalobos, a former Minister of Mining and Metallurgy under Víctor Paz Estenssoro’s administration and later Minister of Economic Development during Gonzalo Sánchez de Lozada’s first term, warned that Bolivia is on the verge of losing its self-sufficiency in natural gas. This would force the country to rely on imports of fuels like diesel, gasoline, and even natural gas.

He pointed out that under these circumstances, mining has regained importance in Bolivia’s exports. However, he clarified that this "resurgence" is more a consequence of the decline in hydrocarbons than a genuine strength in the mining sector. Villalobos argued that, despite the country’s vast natural resources, the lack of investment and exploration is limiting the development of new reserves in both the hydrocarbon and mining sectors.

On the other hand, Enrique Barrios, an attorney and partner at the Dentons Guevara & Gutiérrez law firm with over 20 years of experience in the hydrocarbon sector, argued that poor investment management and a lack of legal guarantees have created an unfavorable environment for investors in Bolivia. He agreed with Villalobos that the challenges in the hydrocarbon sector could spill over into the mining sector if urgent measures are not taken to attract and secure foreign capital.

Both experts highlighted the need to reform Bolivia's hydrocarbon and mining laws to make them more attractive and competitive regionally. Barrios even suggested amending the country’s Constitution, while Villalobos stressed that legal reforms must be accompanied by changes in Bolivian institutions and the judicial system to ensure legal security and build investor confidence. This, they said, is crucial to tapping into resources such as lithium effectively, provided strategies are implemented to attract technology and investment.

With these warnings, the experts urged Bolivian authorities to act swiftly to prevent further economic deterioration and position the country as a viable and attractive destination for natural resource investment.

They also noted that the situation in Bolivia's hydrocarbon and mining sectors could worsen significantly if corrective measures are not taken. “If no changes are made, the situation will not stay the same; it will get worse, much worse,” Villalobos warned, underscoring the urgency of implementing structural reforms in the country.

The Collapse of Lithium Prices and the Importance of Tin

When asked about the viability of lithium, a resource that continues to symbolize hope for Bolivia’s economy, the experts highlighted that the price of this mineral has dropped by approximately 80% over the past two years due to an oversupply in the international market. This has impacted Bolivia's mining prospects.

Villalobos explained that although Bolivia has lithium resources in the Uyuni Salt Flats and other deposits in the country’s southwest, it has yet to establish reserves due to the lack of economically viable technology for extraction. He noted that despite nearly $1 billion in investments over a decade, Bolivia has not developed cost-effective technology for lithium production.

“Lithium experienced a boom a couple of years ago, reaching prices as high as $70,000–$80,000 per ton, but today it’s around $10,000 or even lower in some cases,” Villalobos remarked. He added that while lithium demand may increase in the coming years, driven by the electric vehicle and battery industries, Bolivia has lost its market advantage, with other countries like Chile and Argentina in the region advancing rapidly in lithium exploitation projects.

“Villalobos also emphasized that tin, another key resource for the country, currently holds a value three times higher than lithium…”

However, he pointed out that its exploitation potential is restricted by regulatory limitations that enforce a state monopoly on the refining of this mineral. "If this monopoly were lifted, numerous business opportunities would arise, and the tin sector could be revitalized," he noted, stressing that tin represents an underutilized alternative for Bolivia.

He also recalled how, in 1988, during his tenure as minister, Bolivia negotiated a contract with the Lithium Corporation of America to exploit lithium, boron, potassium, and magnesium in the Uyuni Salt Flats. He highlighted that this project, which could have generated significant revenue for the country, was met with resistance to the extent that the company was expelled. It ultimately left Bolivia and relocated to Argentina, where it established a successful operation.

“Bolivia fell behind and is still floundering, experimenting with technologies that don’t work and failing to consider critical aspects such as water balance and environmental impacts on the fragile basins of the salt flats," lamented Villalobos, underscoring the urgency of adopting a solid strategy for lithium.

SHORT- AND MEDIUM-TERM OUTLOOK: OPTIMISM WITH CONDITIONS

Barrios maintained that despite the challenging context, it is essential to remain optimistic and work toward creating the conditions that would allow Bolivia to attract investment. However, he stressed that for foreign investment to materialize, Bolivia needs to guarantee legal certainty, a robust rule of law, a favorable economic environment, and appropriate laws. Villalobos agreed, emphasizing the importance of strengthening institutions and attracting foreign technology and capital to sustainably develop the country’s non-renewable natural resources.

Both experts concluded with a call to perseverance and continued efforts to improve the national economy. Barrios noted that while Bolivia needs improvements in its legal framework and economy to build investor confidence, perseverance and effort can make a difference. "It’s something that must be earned," Barrios said.

To position itself as a significant player in the natural resource market, both experts agreed that attracting investment, cutting-edge technology, and establishing a clear and transparent strategy are crucial. Only with these structural changes can the country capitalize on its potential and address its current economic challenges.

They warned that Bolivia could face a critical economic situation if urgent reforms are not implemented in the mining and hydrocarbon sectors. Inaction, they asserted, would not only maintain the current situation but worsen it. "If changes are not made, the situation will not remain the same; it will be worse, much worse," Villalobos declared, highlighting the immediate need for changes in the country’s policies and strategies.

“Bolivia has the mineralogical potential, but the other conditions are up to us. This is a country that can rise, and we must not give up," he stressed, highlighting the urgency of rebuilding trust in the country…”