To Nationalize or Not to Nationalize

Written By Luke Burgess

Posted May 23, 2006

[Editor's Note: The following article was taken from our newest free e-letter, Gold World. If you enjoy this article and would like to receive your free subscription to Gold World, follow the link at the bottom of this article.]

In early May Bolivian President Evo Morales issued a decree that declared unbroken state control over his country's natural gas resources.

This move solidified President Morales' role alongside Venezuela's Hugo Chavez and Cuba's Fidel Castro as Latin America's new socialist-inclined leaders united against what they view as the capitalist influence of U.S. and other foreign investors.

Not surprisingly, the international oil and gas firms with interests in Bolivian natural gas expressed sharp indignation toward the new law.

And rightfully so.

Over the past decade, foreign energy companies such as ExxonMobil, Total S.A., and British Petroleum have invested nearly $4.6 billion in extracting and exporting Bolivia's natural gas.

So is the mining industry next?


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The recent act has slapped a big question mark hanging over whether or not Bolivia with nationalize the nation's rich gold, silver, and tin resources.

Comments made by Morales suggest that the country is in fact planning to nationalize its mining industry.

During the May Day declaration, Morales told the Bolivian people, "This is just the start …tomorrow or the day after it will be mining, then the forestry sector, and eventually all of the natural resources for which our ancestors fought"

Also on May 8th, Morales said in an interview with a local television station, "Our mineral resources, our forests and our water resources should be returned to the hands of Bolivians."

Yes, he sent troops into the gas fields to repossess them for the state. And shortly before that, Morales expelled a businessman trying to set up charcoal blast furnaces in Santa Cruz, seat of Bolivia's richest extractive operators.

But is it Morales' true intention to nationalize the mining industry? Or is he merely feeding candy speeches of mine nationalization to his constituents?

It seems to me that Morales stands to lose more than there is to gain by nationalizing the industry.

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The short-term effect means more money for the Bolivian government and will make Morales out to be a "man of the people." But the long-term effects of nationalizing Bolivia's mining industry aren't as cheery.

When state-owned companies rule the roost, many failed in terms of their obligations to the health and safety of workforces, environmental oversight, and returning income to the people at large.

In Zambia during the late nineties, the privatization of Zambia Copper Consolidated Copper Mines stripped workers of various rights (including the right to sue for compensation) and exempted the new owners from environmental regulations.

Worse still, Anglo American pulled out of ZCCM only a couple of years after taking it over, claiming it couldn't make the enterprise profitable.

Furthermore, when countries nationalize their natural resources, especially their mineable resources, production of those resources always decline. Such as in the example of Mauritania.

In 1974, Mauritania nationalized the mining industry as a part of its effort to establish economic independence. That very year iron ore exports reached their all-time high of 11.7 million tons. In the following year, exports of iron ore declined by more than 25 percent.

But aside from losing out in the long-term, Bolivia stands to lose much more in the short-term as well.


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By kicking multinational mining firms out, Bolivia faces losing thousands of jobs paid for by international mining firms as well as a complete stoppage of foreign investment in mining.

Coeur d'Alene Mines, as one example, has invested $135 million into a Bolivian mining project.

The country also stands to lose hundreds of millions of dollars, if not over a billion, from the sale of Bolivia's so-called "national treasure", El Mutún, which the government is currently preparing to auction off

El Mutún, an iron ore deposit in the southeast of Bolivia contains an estimated 40 billion tons of ore. Ten international companies had originally expressed an interest in the deposit and three more are still likely to put in offers.

40 billion tonnes of ore makes El Mutún indisputably the largest mineral deposit in South America…much bigger than The Carajas Iron Province in Brazil that contains almost 18 billion tons of iron ore.

So I don't think Morales is really proposing the type of nationalization characteristic of the 50s and 60s, especially in Africa and Latin America.

The mining industry dominated the Bolivian economy from 1557 to 1985. But since the early 90s, mining has accounted for less than 5% of Bolivia's GDP and government budget.

The fact is, Bolivia needs foreign investors to help build and run new mines.

As a result, I do not agree with those who say it's a bad time to invest in mining companies with interests in Bolivia.

I do not think that Morales will nationalize his country's mining industry. But that is just my opinion and the facts are still left to be seen.

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