How not to build foreign investor confidence

Bolivian president Evo Morales won a January 25 referendum on a new constitution that significantly increases the central government's control over strategic sectors, including mining and natural gas. The new constitution is but the most recent victory in the Movement to Socialism's drive to nationalize the Bolivian economy and consolidate political power (amongst other objectives, of course).

Obviously, the risks posed to foreign investors have increased substantially since Morales gained power in 2005. This uncertainty has resulted in a 75% decline in foreign investment since 2006. But amidst the commodity price and credit collapse of 2008, Morales seemingly realized that the Bolivian government could not fund, explore, extract and manage its natural resource wealth without foreign involvement. State-owned and private Bolivian firms simply lacked the expertise and capital to maximize the country's production/export potential. A number of public assurances and overtures last fall led some to adopt a more optimistic outlook on the role of foreign investors in the Bolivian economy.

Well, if the referendum itself didn't temper this optimism, February 10 sure did. One day after saying that the government would encourage foreign investment in the natural gas sector, the energy minister announced the central government's intentions to nationalize 4 of the power sector's largest companies, including Empressa Electricia Guarachi SA, majority owned by British firm Rurelec Pc.

February 9: Open for business!

February 10: No soup for you!

At this rate, Bolivia better hope General Motors' restructuring includes a whole lot of electric cars, because their mining, natural gas and power production is in a bit of trouble.

(photo: germeister's photostream)

Bolithia

• New York Times, "In Bolivia, Untapped Bounty Meets Nationalism," Simon Romero, February 2, 2009.
  
  
• McClatchy, "Lithium could be Bolivia's future, if politics don't get in way," Tyler Bridges , January 30, 2009.
  
  
• TIME, "For Lithium Car Batteries, Bolivia Is in the Driver's Seat," By Jean Friedman-Rudovsky, January 22, 2009.

Who sent out the memo to every stringer in South America? There's no obvious hook that would have inspired them independently. Did they all see this story last year and decide to carpool out to the Salar de Uyuni salt flats?*

Those grabbed by the haunting photo on the cover of the Gray Lady won't be disappointed. The market for lithium has exploded along with the demand for more efficient car batteries, and as the largest source of the mineral, Bolivia is trying to negotiate how get the maximum social benefit out of this potential windfall. Given the tensions over Bolivia's natural gas reserves and the fact a similar technology-driven mineral boom in the Congo (in that case involving coltan, a key cell phone input) has escalated and drawn out the brutal conflict there, some might worry about a "lithium curse." But the major difference is that lithium is found in the pro-government south, whereas the opposition controls the country's natural gas deposits in the "half-moon" region to the north and east. If President Evo Morales manages the situation prudently, most of the lithium from the salares will end up in Bolivian salaries.

* I typed that facetiously, but copying the links above, I noticed the photo credit for the Times piece is Noah Friedman-Rudovsky, uncannily similar to the author of the TIME story, Jean Friedman-Rudovsky. Trolling the interwebs, I don't see an obvious connection between them, but it does nothing to dispel the perception that foreign reporting is a bit cliquish.