Bolivia Country Profile

General Information

Political Climate

Bolivia has gone through profound political changes in recent years, characterised by civil unrest, political instability and corruption. Increasing polarisation was spurred in 2008 by an intense debate over a proposal for a new constitution, which led to violent clashes when opposition allies and pro-government supporters confronted each other in street protests. On 25 January 2009, 61% of Bolivians voted in favour of a new constitution (in Spanish), which strengthened the rights of Bolivia's Indigenous peoples, increased regional autonomy, established state control over natural resources and allowed President Evo Morales to run for a second term in office in the December 2009 general elections. The polarisation of the Bolivian political arena was underlined when a majority of voters in Bolivia's four eastern regions rejected the new constitution. Opposition parties have a strong support base in these regions which account for most of Bolivia's natural gas production.

Evo Morales, leader of the Movement Toward Socialism (MAS), was elected President in 2005 following an electoral campaign promising massive social reforms based on nationalisation of the country's natural resources and on empowering Bolivia's Indigenous majority. The election of Morales has led to noteworthy changes in political and economic policies, the most drastic of these being the nationalisation of the natural gas sector, which has been empowered by the new constitution. Morales also made the fight against corruption a key campaign issue in 2005 and declared a zero tolerance line against corruption. His administration has introduced new anti-corruption legislation and established the Ministry for Institutional Transparency and the Fight Against Corruption (in Spanish) in February 2009, replacing the former Vice Ministry of the same name. The Ministry aims at countering corruption within public administration. Several high-ranking civil servants in the public institutions most affected by corruption have been investigated, prosecuted and fired, including several MAS appointees following a job-selling scandal. However, according to the Bertelsmann Foundation 2010, these clamp-downs have not been followed by an attempt to reform the lack of transparency and the patronage structures behind the corruption scandals. Mandatory examinations for all public auditors within government ministries have now been introduced. However, according to various observers, the Morales administration continues to suffer from some of the same deficiencies as previous governments, and cases of unlawful enrichment by local government officials continue to appear. In December 2009, Evo Morales was granted a second term in office, when he won the presidential election with about 63% of the votes. In the concurrent parliamentary elections MAS won the majority of the seats in both the Congress and the Senate, the two chambers of the Plurinational Legislative Assembly, thus giving the party free rein to initiate further reforms. In his election campaign, Morales promised to continue the nationalisation of mineral reserves, to secure agricultural insurance for peasants, to industrialise Bolivia's substantial lithium reserves and to provide social services such as universal health care.

It is widely acknowledged that high levels of corruption among the elite and within the state administration sustain the country's social inequality and undermine the fight against poverty. Corruption in Bolivia pervades all levels of society, and the use of facilitation payments is so widespread that some observers describe corruption as an institutionalised and socially accepted norm. According to the Transparency International Global Corruption Barometer 2009, Bolivian households consider political parties, the judiciary and public officials to be particularly marked by corruption and 30% of the respondents reveal to have paid a bribe in 2008. The survey also reveals conflicting public opinions on the effectiveness of the government's fight against corruption, as 43% of the respondents perceive the government's efforts to be 'inefficient' and 39% to be 'efficient'. Latinobarómetro 2009 (see English version) reports that 50% of the respondents believe that there has been 'much' or 'some' progress in reducing corruption in state institutions between 2007 and 2009. According to the US Department of State 2008, bribery and fraud result in the disappearance of about USD 130 million from the national treasury annually.

Business and Corruption

In principle, Bolivia offers the necessary conditions for a well-functioning private sector in which foreign companies can operate freely. According to the US Department of State 2009, foreign companies are not subject to special registration requirements, but they might be negatively affected by inconsistent and arbitrary regulatory decisions and widespread corruption. Business executives surveyed in the World Economic Forum Global Competitiveness Report 2009-2010 rank Bolivia's rules governing FDI as the most unattractive in the world. According to many sources, Bolivia remains a difficult place to do business in practice, especially due to rampant corruption and state intervention in a number of sectors. Increasing nationalisation of natural resource sectors in the country, such as water supply, energy and natural gas, has led foreign investors to doubt the attractiveness of the Bolivian market, while Bolivia is ranked as the fourth-hardest place to do business in Latin America by the Latin Business Chronicle 2009. According to Transparency International Global Corruption Report 2009, the overall costs of starting a company in Bolivia exceeds the average per capita income, thus making it difficult for many informal entrepreneurs to pass to a formal status. Bolivia's informal economy reaches what corresponds to more than 50% of the country's official GDP. In the World Economic Forum Global Competitiveness Report 2009-2010, business executives rank policy instability, followed by access to financing and corruption as the three most problematic factors for doing business in Bolivia. According to the same source, business executives report that the diversion of public funds to companies, individuals or groups due to corruption is quite common and that the unethical behaviour of companies in their interactions with public officials, politicians and other companies represents a strong competitive business disadvantage for Bolivia.

In the World Bank & IFC Enterprise Surveys 2006, two out of three companies identify corruption as a major constraint for their business operations in Bolivia, and one out of three companies expects to make informal payments to public officials to 'get things done'. Interactions with tax officials, the customs services and the judicial system often involve demands for facilitation payments in order to expedite bureaucratic procedures and to circumvent complicated and time-consuming administrative procedures. There are reportedly many legal disputes between companies and the state or workers regarding interpretation of Bolivian labour laws. It is common that companies involved in such disputes are asked for bribes by court officials in return for favourable rulings.

The high levels of corruption combined with considerable political and social instability make Bolivia a risky place to do business. Hence, companies are advised to develop, implement and strengthen internal integrity systems and to carry out extensive due diligence before committing funds and when already doing business in the country.

Regulatory Environment

Despite controversial policies by the government, Bolivia has experienced relatively strong and stable economic growth since Morales assumed office in January 2006. However, there are several obstacles and points to consider before starting business operations in the country. A significant hurdle for business operations in Bolivia is the abundance of administrative procedures. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 report that inefficient government bureaucracy is one of the five most problematic factors for doing business in Bolivia. According to the same survey, when business executives are asked about the burden of government regulations, they give Bolivia a score of 2.8 on a 7-point scale (1 being 'extremely burdensome' and 7 'not burdensome at all'). Moreover, business executives surveyed by the same report indicate that obtaining information about changes to government policies and regulations affecting their industries is highly problematic. According to the World Bank & IFC Doing Business 2010, it takes an average of 15 procedures and 50 days to start a company in Bolivia at a cost of a little more than 99% of GNI per capita. The World Bank & IFC Enterprise Surveys 2006 report that 14.7% of companies identify business licensing and permits as major constraints to doing business and that senior management must spend 13.5% of its time on average dealing with the requirements of government regulations. Starting a company requires several licences and permits, and companies report that obtaining operating licences from municipalities and that registering at the National Chamber of Commerce and at the Caja Nacional de Salud are difficult and time-consuming tasks. In addition, many public agencies are only located in La Paz, which makes starting and operating a business outside the capital difficult. Frequent visits by tax inspectors and shifting tax laws also constitute a considerable burden for companies. Numerous disputes have arisen between tax authorities and companies and, according to Freedom House 2007, tax returns are often challenged by tax officials. Companies also report that customs regulations impose high costs on trade activities due to long delays, especially for clearing imports. Companies seeking to establish themselves in Bolivia should consult the governmental web portal, Trámites Bolivia (in Spanish), for investment information, including guidelines for procedures, requirements and a collection of electronic formulas. Trámites Bolivia has been established with the aim to reduce regulations and procedures, and the portal contains a function where users can propose new ways of simplifying procedures.

Various important economic sectors have been subject to Morales' nationalisation reforms, first and foremost being the natural gas and mining sectors. Companies should be aware of the ongoing nationalisation of the natural gas sector and subsequent changes in hydrocarbon legislation and policy changes. In 2006, foreign and private companies in this sector were given six months to sell at least 51% of their holdings to the state-owned oil and gas company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), and to negotiate new contracts or leave the country. Furthermore, an additional 32% tax on revenues for the hydrocarbon sector has been imposed. Morales has declared all Bolivian territory a public mining reserve, and the state mining company, COMIBOL, is now in charge of administering all mineral wealth in Bolivia. This means that foreign mining companies can only work under concession from COMIBOL.

According to US Department of State 2009, the legal process related to buying land is time-consuming and may be subject to political influence and corruption. Inefficiencies and corruption in the Bolivian judiciary make settling commercial disputes, including disputes over property rights, a time-consuming and unreliable task. Due to a weak and corrupt judiciary, most commercial disputes are settled out of court, with as much as 80% addressed through direct negotiation. It is generally recommended that companies include an international arbitration clause in all contracts with Bolivian private and public entities. In an attempt to circumvent these problematic dispute settlement mechanisms, a local Arbitration Tribunal has recently been established by the National Chamber of Commerce (NCC). Furthermore, the Investment Law of 1990 provides for investors to submit their complaints to arbitration in accordance with the constitution and international norms. The Bolivian government accepts binding international arbitration in all sectors. The law states that international arbitral decisions, such as those made in accordance with the New York Convention of 1958 must be honoured. However, Bolivia withdrew from the International Centre for the Settlement of Investment Disputes (ICSID) in 2007 and according to US Department of State, the Constitution 2009 (in Spanish) contains formulations that seem to limit the possibility for international companies to apply for international arbitration. Access the Lexadin World Law Guide for a collection of legislation in Bolivia.