Bolivian Trade 2018
MABB ©
Although the general elections in October 20th would have to classify as 'the' event for Bolivia in 2019, the major issue capturing the attention of most people currently is the economy. Perhaps because the elections outcome is already known? Who knows!
In all seriousness, the economy has began giving not so encouraging signals, and not only at the micro level, but also at the macro level. The IMF takes, in its latest review of the Bolivian economy, aside from its continued praise for the economy's pace of growth, a cautious tone pointing at the main potential problems, i.e. the twin deficits and the increasing debt. In fact, the IMF stopped short of cautioning the country of the consequences to instead focusing on suggesting measures aimed at permeating the country's authorities approach. In other words, directness not yet necessary.
This post will take a look at trade for 2018. The data here considered comes from the Bolivian Institute of Foreign Trade (Instituto Boliviano de Comercio Exterior or IBCE). As usual, I praise the work of this institute for publishing this data for the general public.
The situation for 2018 is somewhat serious. From the graphs above, 2018 would be the fourth consecutive year where the imports outweigh the exports. This means of course Bolivia has been running a trade deficit, expressed in millions of dollars, since 2015. However, the most unsettling thing is the deficit's upward trend rather than the deficit itself. While an economy normally would be able to weather temporary imbalances, the moment a trend becomes part of the picture is normally perceived as a cautionary development that merits attention.
For Bolivia, this downward trend has been largely accredited to the unfavorable international natural gas prices, of which Bolivia is to a significant extent dependent.
The rationale is as follows: the lower the international natural gas price, the less currency Bolivia receives from this sell, this is reflected in the total amount of exports expressed in millions of dollars. The two graphs above provide some evidence for this. The first pie graph above shows Bolivian exports classified according to sectors such as agriculture, natural gas exports (Bolivian call this sector Hydrocarbons sector), minerals and manufactures. The pie pieces represent the percentage of exports per sector. Therefore, if you want to separate natural resources exports (for Bolivia natural gas and minerals) you would see that from all exports, the natural resources part represents around 61 percent. That is a significant part of total exports and as such it is bound to have an impact on the expression of total exports.
The second pie reinforces the prior idea and takes a simpler approach and classifies exports in two categories, traditional and non traditional products. This categorization I have seen mainly in Spanish literature and it denotes, on the one side, products which have not gone under value added transformation, the traditional products, and on the other side, those products which have been transformed in some form. In Bolivia's case, traditional products would be natural gas, minerals and other products basically exported in unprocessed form (soy paste, for example). This image shows a much larger proportion of traditional products (79 percent) being exported. This would mean the Bolivian economy is largely dependent on the export of traditional exports, i.e. raw materials or natural resources.
Bolivia's trade relationships
But can we put a bit more flesh on this argument? It might be possible if we get a bit more detailed on trade. It gets interesting when we start looking at Bolivia's trade relationship with the countries it exchanges the most. For this little exercise we will exclude Brazil and Argentina because these two countries are the recipients of all of the natural gas exports.
When we leave natural gas out, India, Japan and South Korea currently are the most important trade partners of Bolivia. According the the IBCE, India buys gold, wood, leather, beans, aluminium, Brazil nuts and chia. Japan bought for its part, zinc, silver, lead, tin, sesam, coffee, sugar, quinoa, Brazil nuts and wood. While South Korea bought zinc, silver, lead, pure alcohol, copper remnants, tungsten, wolfram, aluminium, coffee, and Brazil nuts.
Taking into account only the so called non-traditional exports shows Bolivia exports mostly products that have not been significantly transformed or with little value added. Most gold is exported in its raw form, and so is leather, wood and aluminium. Even coffee and Brazil nuts are sent in basically raw form. The only products that have some type of value added are tin and silver and sugar, quinoa, alcohol and chia.
In terms of imports, Bolivia has been importing a lot of capital goods. This has meant of course a larger value in terms of currency exchange. When we talk about trade partners, China has taken the first place to be followed by Brazil, Argentina, Peru and the US. Bolivia has imported from China turbines, buses, motorcycles, mobile telephones, pesticides, rubber tires, etc. From Brazil, Argentina and Peru, Bolivia has bought turbines, plastic, buses, shoes, paper (Brazil), diesel, flower, smaller cars, gasoline, pesticides, some fish and barley (Argentina), as well as cement, pampers, iron bars, derivative oil products, and other comestibles (Peru).
What about the former significant trade partnership with the USA and also with the EU?
If we remember past reviews of Bolivian trade, the USA showed up in the first places among the most important trade partners of Bolivia. This picture is undergoing a change where other countries are replacing the USA as important trade partners. Also, the EU has not been really in the first places and the tendency is it will remain a distant trade partner. But, let us take a closer look at these two partnerships.
Bolivia has been running trade deficits with the USA and the EU. The deficit with the EU extends for 8 years, since 2012, and the deficit with the USA has been running for the last three years, since 2017. Above all, the deficit with the US has been significant because the USA has traditionally been one of the most important trade partners, however, since Morales took office and the USA lost interest in the country, trade between the two countries has been dwindling. As for the EU, trade has not been very significant in terms of volume or value, but the significance is more political and diplomatic.
Nevertheless, the deficits with these two trade partners has some explanations. One explanation is, because the Bolivian government has been investing in infrastructure, such as energy producing plants (Bolivia has said it wants to become a major energy exporter in the region) and trying to diversify the economy by starting some industrial ventures such as factories or refineries, it has obviously needed capital goods. These capital goods cost much more and as such they are reflected in the trade accounts.
The USA and the EU are major suppliers of capital goods. Bolivia has been buying gasoline, turbines, lubricants, compressors, transport vehicles from the USA and vapor and gas turbines, parts, tractors, industrial ovens, prefabricated constructions, transport vehicles and cable cars as well as paper for money from the EU.null the same time, Bolivia has exported minerals such as zinc, tin, silver, lead, Brazil nuts, quinoa, chia and some refined alcohol as well as some oils derivate from petroleum to the USA.
What does it all mean?
This short post should contribute to the explanation of why the Bolivian economy has been having trade deficits. As said earlier, deficits are not per se bad, but the problems begin when a downward trend establishes over several years. The volume and value of trade can be an explanation for that downward trend, but we shall not forget other potential factors that also may contribute to this trend.
Although the general elections in October 20th would have to classify as 'the' event for Bolivia in 2019, the major issue capturing the attention of most people currently is the economy. Perhaps because the elections outcome is already known? Who knows!
In all seriousness, the economy has began giving not so encouraging signals, and not only at the micro level, but also at the macro level. The IMF takes, in its latest review of the Bolivian economy, aside from its continued praise for the economy's pace of growth, a cautious tone pointing at the main potential problems, i.e. the twin deficits and the increasing debt. In fact, the IMF stopped short of cautioning the country of the consequences to instead focusing on suggesting measures aimed at permeating the country's authorities approach. In other words, directness not yet necessary.
This post will take a look at trade for 2018. The data here considered comes from the Bolivian Institute of Foreign Trade (Instituto Boliviano de Comercio Exterior or IBCE). As usual, I praise the work of this institute for publishing this data for the general public.
The situation for 2018 is somewhat serious. From the graphs above, 2018 would be the fourth consecutive year where the imports outweigh the exports. This means of course Bolivia has been running a trade deficit, expressed in millions of dollars, since 2015. However, the most unsettling thing is the deficit's upward trend rather than the deficit itself. While an economy normally would be able to weather temporary imbalances, the moment a trend becomes part of the picture is normally perceived as a cautionary development that merits attention.
For Bolivia, this downward trend has been largely accredited to the unfavorable international natural gas prices, of which Bolivia is to a significant extent dependent.
The rationale is as follows: the lower the international natural gas price, the less currency Bolivia receives from this sell, this is reflected in the total amount of exports expressed in millions of dollars. The two graphs above provide some evidence for this. The first pie graph above shows Bolivian exports classified according to sectors such as agriculture, natural gas exports (Bolivian call this sector Hydrocarbons sector), minerals and manufactures. The pie pieces represent the percentage of exports per sector. Therefore, if you want to separate natural resources exports (for Bolivia natural gas and minerals) you would see that from all exports, the natural resources part represents around 61 percent. That is a significant part of total exports and as such it is bound to have an impact on the expression of total exports.
The second pie reinforces the prior idea and takes a simpler approach and classifies exports in two categories, traditional and non traditional products. This categorization I have seen mainly in Spanish literature and it denotes, on the one side, products which have not gone under value added transformation, the traditional products, and on the other side, those products which have been transformed in some form. In Bolivia's case, traditional products would be natural gas, minerals and other products basically exported in unprocessed form (soy paste, for example). This image shows a much larger proportion of traditional products (79 percent) being exported. This would mean the Bolivian economy is largely dependent on the export of traditional exports, i.e. raw materials or natural resources.
Bolivia's trade relationships
But can we put a bit more flesh on this argument? It might be possible if we get a bit more detailed on trade. It gets interesting when we start looking at Bolivia's trade relationship with the countries it exchanges the most. For this little exercise we will exclude Brazil and Argentina because these two countries are the recipients of all of the natural gas exports.
When we leave natural gas out, India, Japan and South Korea currently are the most important trade partners of Bolivia. According the the IBCE, India buys gold, wood, leather, beans, aluminium, Brazil nuts and chia. Japan bought for its part, zinc, silver, lead, tin, sesam, coffee, sugar, quinoa, Brazil nuts and wood. While South Korea bought zinc, silver, lead, pure alcohol, copper remnants, tungsten, wolfram, aluminium, coffee, and Brazil nuts.
Taking into account only the so called non-traditional exports shows Bolivia exports mostly products that have not been significantly transformed or with little value added. Most gold is exported in its raw form, and so is leather, wood and aluminium. Even coffee and Brazil nuts are sent in basically raw form. The only products that have some type of value added are tin and silver and sugar, quinoa, alcohol and chia.
In terms of imports, Bolivia has been importing a lot of capital goods. This has meant of course a larger value in terms of currency exchange. When we talk about trade partners, China has taken the first place to be followed by Brazil, Argentina, Peru and the US. Bolivia has imported from China turbines, buses, motorcycles, mobile telephones, pesticides, rubber tires, etc. From Brazil, Argentina and Peru, Bolivia has bought turbines, plastic, buses, shoes, paper (Brazil), diesel, flower, smaller cars, gasoline, pesticides, some fish and barley (Argentina), as well as cement, pampers, iron bars, derivative oil products, and other comestibles (Peru).
What about the former significant trade partnership with the USA and also with the EU?
If we remember past reviews of Bolivian trade, the USA showed up in the first places among the most important trade partners of Bolivia. This picture is undergoing a change where other countries are replacing the USA as important trade partners. Also, the EU has not been really in the first places and the tendency is it will remain a distant trade partner. But, let us take a closer look at these two partnerships.
Bolivia has been running trade deficits with the USA and the EU. The deficit with the EU extends for 8 years, since 2012, and the deficit with the USA has been running for the last three years, since 2017. Above all, the deficit with the US has been significant because the USA has traditionally been one of the most important trade partners, however, since Morales took office and the USA lost interest in the country, trade between the two countries has been dwindling. As for the EU, trade has not been very significant in terms of volume or value, but the significance is more political and diplomatic.
Nevertheless, the deficits with these two trade partners has some explanations. One explanation is, because the Bolivian government has been investing in infrastructure, such as energy producing plants (Bolivia has said it wants to become a major energy exporter in the region) and trying to diversify the economy by starting some industrial ventures such as factories or refineries, it has obviously needed capital goods. These capital goods cost much more and as such they are reflected in the trade accounts.
The USA and the EU are major suppliers of capital goods. Bolivia has been buying gasoline, turbines, lubricants, compressors, transport vehicles from the USA and vapor and gas turbines, parts, tractors, industrial ovens, prefabricated constructions, transport vehicles and cable cars as well as paper for money from the EU.null the same time, Bolivia has exported minerals such as zinc, tin, silver, lead, Brazil nuts, quinoa, chia and some refined alcohol as well as some oils derivate from petroleum to the USA.
What does it all mean?
This short post should contribute to the explanation of why the Bolivian economy has been having trade deficits. As said earlier, deficits are not per se bad, but the problems begin when a downward trend establishes over several years. The volume and value of trade can be an explanation for that downward trend, but we shall not forget other potential factors that also may contribute to this trend.
