Jon’s Take on the Bolivian Economy
As the new team member on this 3rd trip to Bolivia, I was quite interested in how the country had been progressing over the past four years since the first team journeyed here. My perspective, being part of the financial / business community in Canada caused me to consider how the Bolivian economy is similar to that in Canada, and in which ways it differs.
In a basic way, Bolivia shares many of the same industries as Canada: energy, mining and agriculture. With the rise of commodity prices over the past number of years, Bolivia is starting to capture significantly higher royalties and resource revenues from state-owned industries. For example, tin prices have soared 10 fold over the last 10 years, making older mines profitable despite the high costs of mining and transportation. Construction is a major segment of the economy in Bolivia, with concrete, gypsum and bricks accounting for most of the core building materials. Wood is quite expensive as large forests are rare here due to the high elevations and deforestation. Bolivia lacks many of the specialized equipment that is common in our agriculture industry, as many farms are small in size and are largely farmed by hand and with oxen.
Bolivia largely operates as a cash society, however, credit is gradually starting to emerge. Land is the key purchase for a family here, with a dwelling or commercial building the next step. We saw thousands of partially completed homes and buildings in Bolivia as the owners begin to build the framework of the structure first, gradually completing this building as funds become available through savings. As a result of this approach, there are few foreclosures and defaults. New neighbourhoods continue to spring up and infrastructure such as water and sewer are gradually expanding to the smaller centres and towns. Rural homes receive subsized electricity, with monthly rates as low as 3 Bolivianos (50 cents).
The currency of Bolivia, the Boliviano is effectively pegged to the US Dollar, at just under 7 Bolivianos to 1 USD. This rate has been fairly consistent over the last 4 -5 years. Property taxes are collected, as are income taxes – although these taxes are generally applicable to those who earn monthly salaries. Most contractors and self-employed people operate on a cash basis only. Unlike Canada, where many occupations are paid on an hourly basis, many Bolivians who work in similar jobs are paid on a monthly basis. For example, restaurant employees are paid a monthly wage. As a result, I expect, there is far less turnover in the service economy. Major purchases (motorcycles, computers, cars, houses) are priced in US Dollars. House prices have escalated significantly in the last few years, with many homes in Cochabamba selling for over US$ 200,000. Even in Llallagua (at 13,000 feet), good homes are selling at over US$ 100,000.
Transportation on the highways is dominated by trucks and buses. Bolivia had a railway system (narrow gauge) which essentially was shut down about 20 years ago. As a result, all major goods and materials must be transported by trucks. Gasoline and diesel fuel is subsidized by the Bolivian government. Diesel fuel is about 45 cents a litre. Bus fares between cities and towns is also subsidized. The cost of a bus fare from Cochabamba to Mizque, a journey of 4 1/2 hours is only 20 B, or just over $ 3. These low costs allow people to go to major centres to pick up goods that can be re-sold in the towns. The roads are extremely arduous with massive changes in elevation. Car and truck repair businesses are everywhere, as are every imaginable type of replacement parts.
A basic wage in Bolivia is between 1,000 and 2,000 Bolivianos a month ($150 – $300). This basically can cover most routine expenses, but leaves little for saving for land or other major expenses. Perhaps one of the most promising aspects of Bolivia is the ability of every student to attend college or university with free tuition. There are many universities throughout Bolivia and most course credits from one university are transferable to others. Education is taken quite seriously by young people and so the future could be brighter. Bolivan universities also attract a high number of foreign students, as the tuition rates for out-of-country students is quite reasonable. For example, Brazilian medical students pay about $600 a month in Bolivia for their tuition versus $2,000 a month in Brazil.
Technology in Bolivia is dominated by the cellular phone industry. Cell phones are everywhere, even with workers earning the basic wage. Rates are low, incoming calls are free and most phones are used on a pay-as-you-go basis. On a given block in Cochabamba, there was likely one to two dozen cellular retailers. Most cellphones are the basic talk/ text variety, as networks are not as advanced as they are in Canada and the cost of Apple iphones is prohibitive for most users. Computers, given that they cost as much in Bolivia as they do in Canada, are also beyond the reach of most Bolivians. Internet cafes are everywhere, with rates of about 1 B for 30 minutes use ($0.15). Wi-fi is gradually emerging in Bolivia.
The major challenge for Bolivia continues to be basic infrastruture: roads, water (distribution/ treatment / sanitation), home heating and others. We saw glimpses of this on our trip – the most obvious being the new 100 km road built between Oruro and Llallagua. This road has brought a significant increase in commerce in that town and with it a growing population. It may take several generations before we see this immense task surrounding infrastructure largely completed though.
The Bolivians we met were hard-working, industrious people. They took immense pride in their skills and workmanship, and were quick with a joke and a smile. The future belongs to the young and the vibrant – they are going to make changes and improvements for the better.
