Prospects for Bolivian Economic Growth, or not?
MABB ©
On July 31 of this year, opposition Senator Oscar Ortiz (Democratas) made a public statement where he presented a report drafted by him with the help of a consulting company which placed in doubt the amount of proven natural gas reserves the Bolivian government said the country had. The government had, in December last year, published a document summarizing the volume of gas reserves to December 2017, which were 10.7 tcf. I wrote a post about it here.
Senator Ortiz alleges the consulting company that certified the amount of reserves for the Bolivian government, Sproule, had made a number of technical and methodological mistakes in the certification process, which resulted on an overestimation of such reserves. Among other things, which you can read from the document (in Spanish), Ortiz alleges the company had failed to take into account the flooding that occurs in the exploitation of mines such as the Bolivian ones, which would diminish the volume of gas and the use of statistical techniques which tend to overestimate the results, which again would deliver wrong results. In the end, Ortiz's report reduces the total volume of proven reserves from 10.7 to 5.05 tcf.
As you can imagine, this has larger repercussions not only for the Bolivian economy, but also for the political situation taking into account that on October this year there will be general elections, when the executive and the legislative are up for election.
However, leaving aside for a moment the political implications, and instead considering the fact that Bolivia is still dependent on the export of natural gas, though not as much as before, important consideration arise as to the economic development of the country. After all, if we consider the country is to face the probability of having less natural gas to export and looking at the current weaker economic environment, one has to wonder whether the concerns (here, here and here) about the Bolivian economy will become more serious.
There would be two things to consider here. One, is to wonder what is going on with the natural gas exports. These are the most important exports for Bolivia. The other one, is to take a look at the other important export sector which is the mining sector or better said, the export of minerals. After all, these two sectors make up to 79 per cent of the total exports.
The Bolivian Institute of Foreign Trade (IBCE, in Spanish Instituto Bolivian de Comercio Exterior) publishes regularly reports on Bolivian trade. The above figure shows, in Spanish, Bolivian exports by groups of products and compares the periods january to june 2018 and 2019 and the units are in kilograms and US Dollars. The groups depicted are gas and other hydrocarbon products and minerals.
The Gas Sector
The IBCE's latest number on exports give again something to think about. Their report (btw, they use data from the Bolivian statistical institute, INE) highlights a y-o-y 30 per cent decline in the volume and a 16 per cent decline in the value of natural gas exports from the first half of 2018 to that of 2019.
These numbers do not only show the decline in the international price of natural gas, which I suggested was the main reason for Bolivia's economic weakening on my other posts about this topic, but also a decline in the exported volume. The latter shows the Bolivian economy is in fact exporting less. Two interpretations are then possible. The first one is of course Brazil and Argentina, the two countries buying Bolivian gas have reduced their demand for gas. One problem for this version, is that the volumes to be exported are set in contracts and are very difficult to change. Of course, in the Latin American context the fact that conditions are set in black and white is no barrier, nevertheless, under normal conditions, such contracts are normally held. The other possibility would be to think the Bolivian government cannot satisfy the demand because simply it is running out of gas. This in fact is the argument some experts are making and is as well what Senator Ortiz is implying with his report.
The Mining Sector
Looking at the export of minerals the numbers show another decline, this time in the export of the second most important sector of the Bolivian economy. We are talking here about the export of zinc, tin, lead, silver and gold. This decline y-o-y is of 11 per cent in terms of volume of mineral exported and of 3 per cent in terms of value, for the same periods in 2018 and 2019.
Again, these declines show the developments in the international prices and the volume exported. However, the situation is a bit different in this sector. It seems here the negative development of international prices, especially of zinc, tin and lead is the major factor influencing this negative trend. From the three charts above you can clearly see the decline in the prices, which points to an increase in supply or decrease in demand, because we are talking about international markets here. This explanation is plausible because China has been buying less raw material, due to the slowdown in global economic growth and its trade war with the US. At the same time, as far as I know, there are more of these metals in the market because more mines have been opened, I think in Australia.
In addition, the reason why the decline has been smaller is due to the positive environment around gold and silver. Gold has been gaining new heights due to the same global economic problems because it is usually sought as a safe heaven when other things are not looking well. In the case of silver, it seems that this metal follows gold.
Implications for Bolivia
The implications for Bolivia are not so rosy. It seems the country is running out of natural gas to export, although the government and the certifying company deny the allegations of Senator Ortiz. As a result, the plans for the future are still on track and the government seems to be desperately looking for new gas fields.
As far as the developments on the metals markets, the government seems to be a taker. It seems the strategy is to sit back and wait for better times.
What the government is doing is trying to start other industries such as cement, paper, and other products, however none of these attempts is turning profits yet.
What has been promising is what the government calls the evaporation extraction sector or the extraction of lithium and the production of derivative products such as urea. These efforts have lots of promises and is drawing many interested parties such as China and Germany. In fact Germany won a bid to build the first lithium production plant. Before that a Chinese company had started a pilot project to see if it was possible to produce lithium in the Salar de Uyuni.
On July 31 of this year, opposition Senator Oscar Ortiz (Democratas) made a public statement where he presented a report drafted by him with the help of a consulting company which placed in doubt the amount of proven natural gas reserves the Bolivian government said the country had. The government had, in December last year, published a document summarizing the volume of gas reserves to December 2017, which were 10.7 tcf. I wrote a post about it here.
Senator Ortiz alleges the consulting company that certified the amount of reserves for the Bolivian government, Sproule, had made a number of technical and methodological mistakes in the certification process, which resulted on an overestimation of such reserves. Among other things, which you can read from the document (in Spanish), Ortiz alleges the company had failed to take into account the flooding that occurs in the exploitation of mines such as the Bolivian ones, which would diminish the volume of gas and the use of statistical techniques which tend to overestimate the results, which again would deliver wrong results. In the end, Ortiz's report reduces the total volume of proven reserves from 10.7 to 5.05 tcf.
As you can imagine, this has larger repercussions not only for the Bolivian economy, but also for the political situation taking into account that on October this year there will be general elections, when the executive and the legislative are up for election.
However, leaving aside for a moment the political implications, and instead considering the fact that Bolivia is still dependent on the export of natural gas, though not as much as before, important consideration arise as to the economic development of the country. After all, if we consider the country is to face the probability of having less natural gas to export and looking at the current weaker economic environment, one has to wonder whether the concerns (here, here and here) about the Bolivian economy will become more serious.
There would be two things to consider here. One, is to wonder what is going on with the natural gas exports. These are the most important exports for Bolivia. The other one, is to take a look at the other important export sector which is the mining sector or better said, the export of minerals. After all, these two sectors make up to 79 per cent of the total exports.
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| Source: IBCE Report on Exports, August 2019 |
The Bolivian Institute of Foreign Trade (IBCE, in Spanish Instituto Bolivian de Comercio Exterior) publishes regularly reports on Bolivian trade. The above figure shows, in Spanish, Bolivian exports by groups of products and compares the periods january to june 2018 and 2019 and the units are in kilograms and US Dollars. The groups depicted are gas and other hydrocarbon products and minerals.
The Gas Sector
The IBCE's latest number on exports give again something to think about. Their report (btw, they use data from the Bolivian statistical institute, INE) highlights a y-o-y 30 per cent decline in the volume and a 16 per cent decline in the value of natural gas exports from the first half of 2018 to that of 2019.
These numbers do not only show the decline in the international price of natural gas, which I suggested was the main reason for Bolivia's economic weakening on my other posts about this topic, but also a decline in the exported volume. The latter shows the Bolivian economy is in fact exporting less. Two interpretations are then possible. The first one is of course Brazil and Argentina, the two countries buying Bolivian gas have reduced their demand for gas. One problem for this version, is that the volumes to be exported are set in contracts and are very difficult to change. Of course, in the Latin American context the fact that conditions are set in black and white is no barrier, nevertheless, under normal conditions, such contracts are normally held. The other possibility would be to think the Bolivian government cannot satisfy the demand because simply it is running out of gas. This in fact is the argument some experts are making and is as well what Senator Ortiz is implying with his report.
The Mining Sector
 |
| Source: Trading Economics and Tradingview |
Looking at the export of minerals the numbers show another decline, this time in the export of the second most important sector of the Bolivian economy. We are talking here about the export of zinc, tin, lead, silver and gold. This decline y-o-y is of 11 per cent in terms of volume of mineral exported and of 3 per cent in terms of value, for the same periods in 2018 and 2019.
Again, these declines show the developments in the international prices and the volume exported. However, the situation is a bit different in this sector. It seems here the negative development of international prices, especially of zinc, tin and lead is the major factor influencing this negative trend. From the three charts above you can clearly see the decline in the prices, which points to an increase in supply or decrease in demand, because we are talking about international markets here. This explanation is plausible because China has been buying less raw material, due to the slowdown in global economic growth and its trade war with the US. At the same time, as far as I know, there are more of these metals in the market because more mines have been opened, I think in Australia.
In addition, the reason why the decline has been smaller is due to the positive environment around gold and silver. Gold has been gaining new heights due to the same global economic problems because it is usually sought as a safe heaven when other things are not looking well. In the case of silver, it seems that this metal follows gold.
Implications for Bolivia
The implications for Bolivia are not so rosy. It seems the country is running out of natural gas to export, although the government and the certifying company deny the allegations of Senator Ortiz. As a result, the plans for the future are still on track and the government seems to be desperately looking for new gas fields.
As far as the developments on the metals markets, the government seems to be a taker. It seems the strategy is to sit back and wait for better times.
What the government is doing is trying to start other industries such as cement, paper, and other products, however none of these attempts is turning profits yet.
What has been promising is what the government calls the evaporation extraction sector or the extraction of lithium and the production of derivative products such as urea. These efforts have lots of promises and is drawing many interested parties such as China and Germany. In fact Germany won a bid to build the first lithium production plant. Before that a Chinese company had started a pilot project to see if it was possible to produce lithium in the Salar de Uyuni.
