Comment The move solidified President Morales' position 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 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 Corp. [NYSE: XOM], Total S.A. [NYSE: TOT], and British Petroleum [NYSE: BP] have invested nearly $4.6 billion in extracting and exporting Bolivia's natural gas.
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.
Will Bolivia Nationalize Mines Next?
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 8, 2006 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."
However, Bolivia may stand to lose more than there is to gain by nationalizing the industry.
The short-term effect means more money for the Bolivian government. But the long-term effects of nationalizing Bolivia's mining industry aren't as cheery.
When state-owned companies rule the roost, many fail 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 (ZCCM) 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.
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%.
But aside from losing out in the long-term, Bolivia stands to lose out in the short-term as well.
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.
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. So, the Bolivian nationalization of mines is still debatable.
Good Investing,
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