Examine Potential Business Opportunities In Bolivia Commerce Essay

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The research will analyze Bolivias business environment in three environments namely Cultural environment; Political and Legal environment; and Economic environment.

Bolivia, located in the heart of South America, is a unique and fascinating country full of contrast and surprises. It is considered to be one of the least developed countries in South America. Almost two-thirds of its people, many of whom are subsistence farmers, live in poverty. The ethnic distribution is estimated to be 55% indigenous, 15% European, and 30% mixed.

The largest of the approximately three-dozen indigenous groups are the Quechua, Aymara, Chiquitano and Guarani. No other indigenous groups represent more than 0.5% of the population. German, Croatian, Serbian, Asian, Middle Eastern, and other minorities also live in Bolivia. Many of these minorities descend from families that have lived in Bolivia for several generations. Spanish, Quechua and Aymara are the official languages.

Bolivia's culture has been heavily influenced by these ethnic groups, as well as by the popular cultures of Latin America as a whole. Bolivia is the reflection of a past that is rich in rituals, cultures, and traditions. All these brought together in a diverse geographical space, a space in which day by day, in spite of everything, a vibrant culture can be perceived.

Religious Festivals

Festivals in Bolivia are generally pagan and are expressed by means of rituals and dances; the Faith/Belief that any one of the desires of prosperity can be granted motivates these. According to a religious Cosmo Vision, pre-Hispanic cultures are revealed through their deities and gods; one of the oldest being the Pachamama, to whom tribute is given by means of the ch'alla. With the passing of time many changes have occurred.

Political and Legal Environment in Bolivia

The political and economic development in bolivia have been stymied by chronic instability, extreme poverty, pervasive corruption, and deep ethnic and regional cleavages. In 1825, Bolivia won its independence from Spain, but then experienced frequent military coups and counter-coups until democratic civilian rule was established in 1982.

The head of the state of the country Plurinational State of Bolivia is the president, who is elected by the voting system for a five-year-term. The president is both the chief of the state and head of the government. Bolivia has democratically elected governments since 1982, when a long string of military coups came to an end, are governing the country.

President Morales was re-elected as the president for the second time with 64% of the vote, followed by former Cochabamba Prefect Manfred Reyes Villa (27%) and business leader Samuel Doria Medina (6%). The ruling MAS party won 88 out of 130 deputy races and 26 out of 36 Senate seats, gaining a two-thirds majority of the Plurinational Assembly.

A new constitution was promulgated February 7, 2009, replacing Bolivia's 1967 constitution. The 2009 constitution provides for legislative, executive, judicial, and electoral branches of government.

The National Congress, renamed Plurinational Assembly, is composed of two bodies. They are

Chamber of Deputies and

Chamber of Senators.

The Chamber of Deputies has 130 members, and the Chamber of Senators has 36 members (4 from each of the 9 departments). Within the Chamber of Deputies, direct vote, 53 by party list, and seven in special indigenous areas will select 70 members. The executive consists of the president, vice president, and the ministers of state. The president and vice president are selected through national elections. The ministers of state are appointed.

The judiciary consists of a Supreme Court, an independent Constitutional Tribunal, a Supreme Electoral Tribunal, and departmental and lower courts. The 2009 constitution reformed the procedure for selecting judicial officials for the Supreme Court, Constitutional Tribunal, and Supreme Electoral Tribunal. These officials will be elected by national vote. To stand for election, candidates first must be approved by a two-thirds majority vote of all Plurinational Assembly members present.

The new constitution strengthens the executive branch and centralizes political and economic decision-making. It also provides new powers and responsibilities at the departmental, municipal, and regional areas, as well as in newly created indigenous autonomous areas.

Economic Overview

Bolivia's estimated 2009 gross domestic product (GDP) totaled $17.5 billion. Economic growth was estimated at about 3.7%, and inflation was estimated at about 0.3%.

Agriculture accounts for roughly 10.44% of Bolivia's GDP. The amount of land cultivated by modern farming techniques is increasing rapidly in the Santa Cruz area, where climate permits two crops a year. Soybeans are the major cash crop, sold in the CAN market. The extraction of minerals and hydrocarbons accounts for another 14.24% of GDP and manufacturing around 11%.

The most important change involved the "Privatization" of numerous public sector enterprises. Parallel legislative reforms locked in place market-oriented policies that encouraged private investment. Foreign investors were accorded national treatment, and foreign ownership of companies was virtually unrestricted.

President Morales nationalized the hydrocarbon sector and expropriated some large international companies, including Entel and Vinto. Increased state control of the economy continues to be a primary goal of the Morales administration. Foreign direct investment (FDI) inflows have dwindled, as has long-term investment across most industrial sectors.

The hydrocarbon sector provides the most prominent example of the current investment climate. Bolivia has the second-largest natural gas reserves in South America. The Bolivian state oil corporation, YPFB, has contracts to supply Brazil with natural gas through existing pipelines until 2019.

Moreover, in 2006, YPFB signed a "ramp-up" contract with Argentina that steadily increases export levels until 2010, when gas deliveries to Argentina should be more than four times current levels.

However, lack of substantial investment between 2005 and 2009 meant that gas production stagnated; increasing by less than 10% over four years. The 2009 production level was estimated at 36 million cubic meters/day. Companies appeared to be investing only what was necessary to maintain current operations.

Source: Development Economics LDB database.

Bolivia - Trade

Bolivian exports were approximately $5.3 billion for 2009, up from $652 million in 1991. Imports were $4.4 billion in 2009. Bolivia enjoyed an estimated $900 million trade surplus in 2009. Hydrocarbons made up 38.6% of the exports, minerals 28.26%, manufacturing 27.82%, and agriculture 5.32%.

Bolivia's trade with neighboring countries is growing, in part because of several regional preferential trade agreements. Bolivia is a member of the Andean Community (CAN) and enjoys nominally free trade with other member countries (Peru, Ecuador, and Colombia). Bolivia is also an associate member of Mercosur (Southern Cone Common Market). Bolivia currently is focused on developing markets through its membership in Bolivarian Alliance for the Americas (ALBA) whose members include Venezuela, Cuba, and Nicaragua.

Until recently, the Andean Trade Promotion and Drug Eradication Act (ATPDEA) allowed numerous Bolivian products to enter the United States duty-free, including alpaca and llama products and, subject to a quota, cotton textiles. President George W. Bush suspended Bolivia's participation in the program based on its failure to meet international counternarcotics obligations; meeting those obligations is a criterion in the U.S. statute, which created the preference program.

In 2009 President Barack Obama determined that Bolivia was not meeting the program's eligibility criteria. This determination does not affect Bolivia's eligibility for benefits under the Generalized System of Preferences (GSP), which covers most of Bolivia's exports to the United States.

In 2009 the United States exported $585 million of merchandise to Bolivia and imported $408 million. It's major exports to the United States are tin, silver and silver concentrates, petroleum products, Brazil nuts, quinoa, and jewelry. Its major imports from the United States are airplane parts, electronic equipment, chemicals, vehicles, wheat, and machinery.

The Government of Bolivia remains heavily dependent on foreign assistance to finance development projects. Estimates indicate that as of 2008, the government owed $4.6 billion to foreign creditors. Between 1986 and 1998, Bolivia attended seven rounds of negotiations with Paris Club creditors and received U.S. $1.35 billion of bilateral debt forgiveness. The United States forgave almost all of Bolivia's bilateral debt between 1999 and 2002 and strongly supported efforts to have multilateral institutions do the same. Bolivia received U.S. $1.95 billion in debt relief from HIPC (Heavily Indebted Poor Countries) in 1998 and HIPC II in 2001, including almost complete bilateral debt forgiveness.

Comparative Advantage

According to David Ricardo's Comparative advantage of Bolivia, the two industries we are going to discuss are hydrocarbon resources and agricultural industry.

The consequences of Bolivia have been 'impoverishing economic growth' the economy grew by 5% in 2007, while the number of people below the poverty line increased. They have been always dependant on the exports of silver, tin, rubber and now also of hydrocarbons. Orthodox economic development patterns were reliant on a cheap, unskilled labor force, and this pattern tended to concentrate wealth in just a few sectors and in the hands of wealthy families and large companies. The paradox of impoverishing economic growth is twofold: first, it shows the country lacks diversity in its productive matrix. Extractive activities, drawn into nationalization processes since the election of Evo Morales to power in 2006, have led the government to spend a great deal of its revenue on these conventional sectors and on social assistance program's.


Second, mining and hydrocarbons are capital-intensive sectors, with weak linkages to the rest of the Bolivian economy. These sectors employ only 10 per cent or so of the economically active population of the country; indeed, the main sources of employment remain agriculture (36 per cent) and trade (14 per cent). Consequently, in line with the so-called 'curse of natural resources', the richness of Bolivia's natural resources is not translated into a better standard of life for most Bolivians. It can be concluded saying that Bolivia have their comparative advantage in hydrocarbon and mining industry.

Heckscher-Ohlin Factor Proportions Theory

This theory suggests that each country has important factor endowments and as a result will tend to export products, which make use of factors that are abundant there. The country will tend to import products that are locally scarce (Daniels, et al. 2004).

Source: Development Economics LDB database.

Porter's Diamond of national Competitiveness

The four attributes of a country's economic system that together shape the environment in which local companies compete are as follows 1) Factor Conditions; 2) Demand conditions; 3) Related and supporting industries; 4) Company strategy, structure and rivalry.

The factor conditions would be the renewable and non-renewable natural resources. The demand conditions would be the

Factor conditions would be mainly renewable and non-renewable natural resources.

Demand conditions for an agriculture product is high in local market and scarcity of food in Bolivia should be avoided by only investing in agricultural industry by the government. The global demand for silver, tin are very high.

Related and supporting industries would be the transport and manufacturing industries.

Firm strategy, structure, rivalry would be depicted as below:

The Bolivia government had support the firms by lifting the tax on silver, tin export which is sure to boost its trade.

Recommendations:

Although Bolivia's economy will remain hydrocarbon- and mining- based in the long term, they can revalue the land according to its uses and degree of biodiversity can be started to make a feasible source of livelihood options for thousands of Bolivians. This 'alternative' economy involves an estimated half a million smaller producers and their families, and contributes an estimated US$300 million annually in export revenue, generating 370,000 jobs in total across Bolivia. There are around 60,000 organic producers across Bolivia and 26 organizations involved in Fair Trade networks (which puts Bolivia in fourth place in Latin America). The small size of these initiatives is not an accident; their scale means they are less capital-intensive and so have the potential to diversify both the economy and people's livelihoods. With time, the 'other frontier' might help shape a new identity for Bolivia as a high-ranking, mega-biodiversity country.

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