A Return to Bolivian Socialism: Implications following the recent election.

Bolivia has recently elected a new government with Luis Arce at the helm of the political party Movement for Socialism (MAS). Evo Morales, Arce’s predecessor at the MAS had been in power until his resignation in 2019, following an audit by the Organisation of the American States that confirmed an attempt by MAS to manipulate election results. A coup by the Democratic Socialist movement followed this which resulted in MAS losing power. The left-wing party reclaiming control has significant socio-economic implications for the the country, especially should they prove able to take advantage of the country’s wealth of natural resources.

Bolivia is a land-locked, mineral-rich country in Latin America, with its main exports being natural gas and precious metal ores such as zinc and gold. In addition, the country also possesses the world’s largest lithium reserve, according to the US Geological Survey. Due to the ever-increasing demand for battery technology, of which lithium is a key component, Bolivia’s attraction of foreign investment has greatly increased. This growing demand for lithium and battery technology is perhaps best illustrated by the emergence of portable electronics and electric cars, which all use lithium-ion batteries. As such, Bolivia attracts investors from global powerhouses like China and Russia, with Chinese Consortium Xinjiang TBEA Group Co Ltd striking a deal with Bolivia’s state-owned Lithium company, YLB, for a $2.3bn Lithium project early last year.

In spite of this industrial potential, the MAS’ past leadership has at times hindered Bolivia’s foreign investment sums. Discrimination and government restrictions against foreign investors are common: in 2012, the MAS government threatened to expel Coca-Cola, and in 2013, proposed the expropriation of infrastructure company ‘Servicios de Aeropuertos Bolivianos’.  In addition, disputes between locals and the party are frequent. One such disagreement in the city of Potosi regarding a factory, led to a lithium project with a German lithium manufacturer ACISA, being shelved due to widespread protests. Locals believed agreements to build a mine, an electric vehicle battery factory and a lithium hydroxide plant were not offering sufficient domestic benefits. In addition, MAS has also nationalised natural resource industries such as oil and gas, as well as even a power grid owned by Red Eléctrica, a Spanish electricity firm. These nationalisation efforts are bound to be a consideration for potential foreign investors and may discourage investment.

Political stability also seemingly hinges on the lithium trade in Bolivia. In 2019, the US-backed conservative ‘Democrat Social Movement’ took charge of the country in an alleged coup. This was suggested to be fueled by Bolivia’s lithium reserves. A since deleted tweet by Elon Musk reading, ‘We will coup whoever we want’ heightened tensions. He responded to the suggestion that his electric car company Tesla had helped support the conservative party’s political efforts. As such, following the re-election of the MAS, Tesla’s stock price fell over 2% on the first day, given Musk’s perceived support of the previous coup and due to access to lithium being a key supply chain component in the manufacture of Tesla’s electric car. With many investors, such as Musk, seemingly reluctant to invest in Bolivia, providing a somewhat politically stable environment may turn  Bolivia into a worthwhile emerging market investment opportunity, should the government be ready to offer this. If political uncertainty continues however, even more investment potential may be threatened.

The market reaction to the Movement for Socialism’s re-election has been relatively mixed, with some lithium stock prices, such as ‘Albemarle’, ‘SQM’ and ‘Livent’ seeing slight increases. Nonetheless,  other companies, like ‘Lithium Americas’ and ‘FMC saslight’, witnessed decreases in stock prices. As Bolivia’s MAS is yet to be inaugurated, no new changes have been implemented. However, the potential of Bolivia becoming a ‘lithium powerhouse‘ could possibly cause stocks of other worldwide lithium companies such as the current lead producer, Albemarle, to decline due to further market saturation.

The long-term financial impact of the new Bolivian government will only be positive should they be able to effectively utilise the vast natural resources the country has to offer, most notably lithium. Moreover, the MAS must maintain and balance relations with foreign investors and locals, as well as attract new investors, perhaps through easing regulations. The likelihood of this is questionable however given the left-wing party’s historical reputation.

 

By Hadi Ahmed

Sector Head: Jared Gibson

Posted in

Leave a Comment