Bolivia has a long mining tradition. The country produces gold, tin, zinc, silver, antimony, lithium and lead. For decades, tin mining has been the mainstay of the Bolivian economy. Recently, international economic factors changed this.
The collapse of the International Tin Council, significant increases in the worlds tin production capacity resulting largely from the emergence of Brazil as a major tin producer, the menacing prospects of dramatic price declines caused by excess supply and dwindling Bolivian tin reserves have forced Bolivia to initiate polices to lessen its dependence on tin mining while encouraging the development of other minerals.
Knowing that the Canadian mining community wants to remain au courant of development in Bolivias mining sector, the Canadian Embassy in Peru (which has responsibility for Canadians relations with Bolivia) produced a report on Bolivias mining sector. The report, published in August, 1991, looks briefly at the evolution of the Bolivian mining industry, discusses recent policy initiatives and highlights opportunities for Canadian suppliers of mining equipment and services.
The salient sections of the report (unabridged) follow:
While indigenous people had long known of and used metal deposits, exploitation of gold and silver on a massive, sustained basis began in the sixteenth century, early in the colonial period. Until the end of the nineteenth century, Bolivia was a major world exporter of silver. However, when the abandonment of precious metal coinage, together with the opening of large deposits elsewhere in the world, led to declining prices, Bolivia was poorly equipped to compete. Primitive technology, difficult access and depleted reserves contributed to a general decline in the importance of silver exports.
Instead, attention shifted to tin in response to increasing prices and high world demand after the turn of the twentieth century. In fairly short order, tin became the dominant export, and Bolivia joined the ranks of leading producers.
Ownership of tin production was quite concentrated, and conditions of extraction were notoriously arduous. Nearly 80% of output was controlled by three groups Patino, Hochshild and Aramayo, the tin barons. These groups came to control not only tin deposits but also other important metal deposits and prospects.
With the Revolution of 1952, the interests of the former controlling groups were nationalized by the government of Hugo Paz Estenssoro to form COMIBOL (Corporacion Minera de Bolivia). In the process, some 163 mines and properties passed into state hands, including 24 operating mines, 20 small mines with limited artesanal workings, 29 partially explored but undeveloped properties, and many prospects and concessions.
While COMIBOL maintained existing operations, it is instructive to note that the state corporation was unable to develop even one of its exploration prospects into a productive operation. It has been suggested that this reflected not just limited economic capacity but also an inherent orientation toward maximization of production in the short term. Exploration and development capabilities were never fostered in any coherent way. By the mid-1980s, it was possible for the Bolivian government itself to characterize COMIBOL as inefficient, corrupt and unprofitable. The leading mine producer had become addicted to fiscal-based financing, helping to contribute to inflation which reached the astonishing level of 26,0005 early in 1985. Populism and years of patronage had played an important role. Of 30,000 COMIBOL employees, it is said that only some 7,000 were directly involved in mine work. The collapse of tin prices in 1985 following the failure of the International Tin Agreement merely constituted the coup de grace.
In the first half of the 1980s, COMIBOLs accumulated losses on mining and smelting activities approached US$1 billion. Losses in 1983-1984 alone had exceeded US$300 million. The state itself contributed to decapitalization through the imposition of highly unrealistic official exchange rates that sold U.S. currency (earned predominantly on COMIBOL exports) at little more than 10% of street rates.
Bolivias experiment in state-led economics thus came to an inglorious end in 1985 in a mire of hyperinflation, corruption and disarray which capped five years of declining GNP. Value of mining production had peaked in 1980 at more than US$641 million in a climate of strong prices. By 1984, even before the collapse of tin prices, production value had fallen by nearly half, to US$364 million, and it would fall again by nearly another half, to US$197 million, in 1986 with the near paralysis of COMIBOL.
In 1985, Hugo Paz Estenssoro was elected to the residency. Ironically, he had been the principal architect of nationalization when he had ruled some thirty years before. In 1985, he was presented the daunting task of stabilizing a shattered state-led economy with one of the highest hyperinflations ever experienced. His response was the New Economic Policy (NEP) of 1985, and it represented the undoing of much which his party had previously engendered. The principal elements of NEP were fiscal austerity and free play of market forces. The budgetary deficit has been held to near zero since 1986. Controls on prices of goods, services, wages and foreign exchange have been eliminated. U.S. dollars are now sold under open auction by the Central Bank. The tax system was greatly simplified and efforts were made to cut bureaucracy. Inflation has been wrestled down from astronomical heights to levels which have been maintained in the 10-20% range.
COMIBOL was a special target for attention. The workforce was slashed from 20,000 to under 7,000, with several mines formed into co-operatives, including the tin operations at Catavi, Coquechaca, Morococala and Colavi. The new government chose effectively to paralyse COMIBOL during a period of readjustments. COMIBOLs financial losses were cut to US$8.3 million in 1988. The intention is to convert COMIBOL into a holding corporation, operating a new profitable mine on its own account while seeking partners to explore, develop and operate other properties.
(As minerals are the inalienable property of the state, according to Bolivian law, COMIBOL, as the stats mining arm, evidently cannot divest itself of resource ownership. For this reason, joint venture arrangements are sought, rather than outright sale).
A system of fiscal reserve had held major portions of Bolivian territory in state hands, thereby excluding entrepreneurial exploration and development. Most of the territory involved has since been freed up. The legal monopoly of state-sector foundries has been eliminated, allowing private producers to freely sell concentrate to private foundries, including those abroad. One result of this has been to force state-sector processors to adjust to competitive conditions. The state-run Vinto metallurgical complex has since been described by private sector spokesmen as well managed, a singular accolade under the circumstances.
The government of President Paz Estenssoro explicitly recognized that private foreign and domestic investment would be indispensable for the recovery and expansion of mining. Efforts were therefore made to render the climate as welcoming as necessary.
Among the factors which should be attractive to foreign investors (in addition to highly interesting geology) are equal treatment of national and foreign capital, Latin Americas lowest income tax rates, tax exemption for reinvested profits, free currency convertibility and repatriation, and Bolivian subscription to international investment guarantee agreements. Early in April, 1991, the new Bolivian Mining Code became law, taking many observers somewhat by surprise. Passage came rather dramatically during a late night session of the legislature. Issued in the form of a series of amendments to the old 1965 Code, the new legislation has been well received by the industry. While the former Code had generally been viewed as an adequate framework for traditional vein mining, it was felt that modifications were overdue.
The two most significant elements in the new code concern taxation and access to previously restricted territories.
Under the old system, mining companies were assessed taxes on the basis of presumed production costs and presumed profits, according to a somewhat complex formula. As production costs were based on average assumptions, the system was rather perverse, tending to the greatest benefit of firms whose costs of production were lowest. Nonetheless (or perhaps consequently), many traditional producers were happy enough with the arrangements. The current system applies to all new mining ventures, while allowing established operations to continue to use the former approach until 1999, if desired. A tax of 30% is levied on profits, as determined by standard accounting procedures. In addition, a 2.5% anticipo (advance payment) is levied on the value of all onward sales of mineral products. The total of anticipos paid is applied against the tax owing on profits. If the balance of (tax owing on profits) minus (anticipo paid) is positive, the difference must be paid to the revenue collecting authority. If the total value of anticipo payments exceeds profit tax liability, the difference may be brought forward as a credit in succeeding fiscal years. (Unprofitable operations will thus go out of business a little sooner, perhaps.) In addition to the above taxes, a 10% VAT applies to transactions involving mineral commodities. VAT is refundable in the form of a fiscal credit at the point of export. A secondary market in VAT paper exists, and processors are authorized to purchase credits in advance from suppliers. (In the case of state foundries, this seems not to be so; state agencies are not at liberty to engage in these secondary transactions.)
Under the new rules, reinvested profits are exempt from taxation as an incentive to productive expansion. It has been suggested, however, that he use of standard accounting norms to calculate profit may ultimately rule out the possibility of accelerated depreciation allowances or similar measures.
The response of foreign firms to the signal given by passage of the new mining code has been swift and impressive. Whereas pessimism had been in vogue just three months previously, by June 1991, it was possible to identify some 30 foreign companies either actively involved or demonstrating solid interest in Bolivia.
From a recent edition of World Mineral Notes of Energy, Mines and Resources Canada.
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