BOLIVIA: An Introduction to Corporate/Commercial
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End of political unrest
In October 2020, Bolivia held a general election, in which the Movimiento al Socialismo (MAS) won in a landslide victory, with presidential candidate Luis Arce claiming victory in the first round.
Thereafter, on March 7, 2021, Bolivia held regional and municipal elections in which the opposition won 6 of 9 regional governments by a large margin (state equivalent) and 7 out of 10 largest urban centres. However, MAS won in most municipalities, underscoring this party’s political concentration in rural areas.
The appointment of the newly elected local officials in 2021 ended Bolivia’s unpredictable political environment, beginning in November 2019 when former president Evo Morales resigned in the midst of protests claiming that MAS had sponsored fraudulent elections.
It is expected that the new political landscape, with opposition members holding 45% of Congressional seats (as opposed to 1/3 in the previous cycle) and governing in most strategic regions should result in more collaboration between the MAS government and the opposition parties, thus providing more political stability and further legislative control through checks and balances.
Economic recovery with looming crisis
Following an 8% economic contraction in 2020 due primarily to COVID-19-related expenditures and subsidies (the largest contraction in over 50 years), in 2021 Bolivia’s economy grew 6.1%, thanks to the mining, construction, and transport sectors registering double digit growth rates.
In 2022 growth is likely being supported by the recent surge in commodity prices, especially of base metals, energy and grain, which have boosted the recovery of the mining, hydrocarbons and agricultural sectors. According to the International Monetary Fund (IMF) Bolivia’s Gross Domestic Product (GDP) is expected to increase by 4.2% in 2022.
On the downside, Bolivia’s fiscal deficit has been increasing in recent years, projected to reach 8% in 2022, up 3% as compared to 2021. According to the government, the unexpected increase of the fiscal deficit in this year’s budget is the result of policies aimed at high public spending and growing domestic credit to maintain economic growth.
In addition, Bolivia’s international reserves have been affected because of the lingering fiscal deficit, the political crisis during the 2019-2020 period and the effect of the COVID-19 pandemic. In the past decade, Bolivia’s large international reserves were instrumental in managing its exchange rate and low inflation; however, with reduced international reserves it remains to be seen if policies with respect to the foreign exchange rate (which have remained unchanged since 2011) and low inflation rates will remain. Recently, the Central Bank of Bolivia reported that in 2021 Bolivia had a trade balance surplus, which is encouraging as such situation should help maintain inflation levels under control.
Activity, trends and developments
With the recovery of the economy underway, and with the value of companies diminished due to COVID-19-related restrictions and/or decreases in customer/client demand, M&A activity in 2021 and 2022 has been exceptionally dynamic, particularly in the automotive, retail, agribusiness and mining sectors, which witnessed a record-breaking number of deals in terms of volume, value and complexity.
For example, in the automotive sector Astra acquired Ovando S.A., Bolivia’s distributor of Mercedes-Benz, Jeep and Mitsubishi automobiles, and, most recently, Inchcape acquired Derco’s regional distribution business in Bolivia, Chile, Peru and Colombia, a USD1.5 billion transaction. Derco distributes, among others, Suzuki, Mazda, Renault and Chevrolet vehicles.
On the other hand, the mining sector, which represents about 6% of the GDP, has had a remarkable comeback in 2021 thanks to - in addition to the price of base metals - the political instability in traditional mining countries (Peru, Chile and Argentina), a situation which is attracting Canadian, US, Chinese, and Australian investments in the mining industry which would otherwise land in neighbouring countries. In 2021, for instance, Santa Cruz Mining acquired Glencore’s Bolivian silver and zinc-producing assets. In a similar way, relevant mining players New Pacific Metals, Mantaro Precious Metals, Andean Precious Metals, ElOro, and WhiteHorse Gold, have acquired or have obtained rights over mining assets in the country.
In 2021, gross foreign direct investment (FDI) flows only reached USD480 million, higher than in 2020 when Bolivia registered a significant divestment of USD1,018 million. FDI flows were greatest in hydrocarbons, manufacturing, industry, and commerce, together representing over 80 percent of the total. Additional sectors receiving some FDI included the transport sector, storage and communications, insurance companies, and real estate services.
Government supported projects
The country’s reduced gas reserves have caused state-owned YPFB to assume an aggressive approach to seek new private investment to boost the hydrocarbons sector. Thus, in July 2021 YPFB announced its Upstream 2021 Reactivation Plan, which incorporates new exploration areas in 7 of Bolivia’s 9 regions. While introducing its reactivation plan, the company entered into agreements with Vintage and Canacol Energy.
In April 2022, YPFB entered into a gas supply agreement with Argentine IEASA for the supply of up to 14 million cubic metres of gas per day, guaranteeing such supply until 2025. Similarly, in March 2022 YPFB entered into a gas supply agreement with Brazil's energy trader Tradener to supply it with 2.2 million cubic metres of gas per day.
Another example is state-owned YLB’s (Yacimientos del Litio Boliviano) efforts to develop Bolivia’s lithium reserves, which are the largest in the world with at least 24 million proven tons. In May 2021, in coordination with the government, YLB selected eight companies from Argentina, China, Russia and the United States to carry out pilot tests with different technologies for direct lithium extraction in the flats of Uyuni, Coipasa and Pastos Grandes.
YLB will evaluate the proposals based on the percentage of lithium extracted from the brine and environmental impact. It intends to make a decision on the technology later this year and is targeting production of cathodes for lithium batteries by 2024.
In the past five years the mining sector has experienced a massive increase of foreign investment, with small, medium and large mining companies from around the world landing in Bolivia, increasing mining activity in 2021 by almost 50% as compared to the previous year, and representing approximately 6% by share of total national GDP.
Finally, the Arce government and the region of Oruro have demonstrated an interest in developing Bolivia’s clean energy capabilities and have vowed to pass regulations which will permit the production of such energies. Consistent with this, the government of Oruro has entered into a cooperation agreement with H2 Bolivia S.A. to build a green ammonia plant to produce up to 0.4 Mt per annum of green ammonia. The USD2 billion project is one of Latin America's largest and will help reduce CO2 emissions and will generate 10,000 new sustainable jobs.
New legislation affecting clients
Since 2020, the government has implemented policies to reactivate the economy and reduce the effects of the economic downturn, particularly in the tax sphere.
The main objectives of the government yielded several measures of great importance, which include:
- On December 28, 2020, the government approved a law on wealth tax (Impuesto a las Grandes Fortunas) on resident and non-resident individuals who own a net worth exceeding Bs. 30 million (USD4.3 million, approximately) as of December of each year, with progressive rates between 1.4% and 2.4%.
- On 31 October 2021, Congress approved Law 1391 to establish tax incentives to reactivate the economy and promote imports, including the following measures:
a) Value-added tax (VAT) exemption on the imports of capital goods, industrial plants, and high-capacity cargo vehicles in volume and tonnage for the agricultural and industrial sectors, including refrigerated vehicles, and heavy machinery for the construction sector and mining.
b) Zero VAT rate for sales within the domestic market of capital goods, industrial plants, and high-capacity cargo vehicles in volume and tonnage for the agricultural and industrial sectors, including refrigerated vehicles, and heavy machinery for the construction and mining sector.
c) These tax incentives have a period of one year computable from the fifth business day following the publication of the regulatory Supreme Decree, which was published on 1 September 2021.
- On 25 July 2022, Congress passed Law 448 - legislation that amends certain tax administrative and procedural measures, including:
a) A reduced penalty for non-payment of taxes.
b) An extension of the period for voluntary disclosure.
c) Measures regarding entities or persons who conduct economic activities in Bolivia but are not registered for value added tax (VAT) purposes.
d) Provisions regarding the taxation of persons involved in certain professions and trades.