I want to follow my most recent post on the IMF's, less than encouraging, assessment of the Bolivian economy in 2018, which warned about the twin deficits problem the country has been experiencing, with another post taking a more detailed look at the country's trade sector. The expectation on the country's economic performance is ambiguous at best. Not only because the optimal level of natural gas international prices for the country has not been reached, but because the unsettling trends the IMF's report mentions have been continuing their downward path. Many questions arise of course out of this situation. The most pressing ones are: 1) how did Bolivia get in this situation? 2) what is to come? However, this post leaves the most pressing question aside for a moment to address the question as to how does the trade deficit look like and why does it look the way it does. The aim is to give a clearer picture about what types of products Bolivia sells and what products it buys and to shed light on the country's trade partners.
The Trade Deficit
|Source: IBCE (based on INE data)|
The data used in this post is from the Bolivian Institute for Foreign Trade (Instituto Boliviano de Comercio Exterior or IBCE), which regularly publishes in the form of simplified graphs the raw data produced by the Bolivian Statistical Institute (Instituto Nacional de Estadistica or INE).
To start of, the data shows a deficit for the years 2017 and 2018 of 970 and 936 millions of USD, respectively. Many observers and experts have been mainly explaining this negative trend, a trend manifesting itself since 2014 or 2015, through the highs and lows in the international natural resources prices, especially that of oil and particularly natural gas, of which the Bolivian economy is highly dependent. That is of course, a simplistic, yet mostly accurate explanation, if we take into account of the fact that the export of natural gas accounts for around 34% of the total export value. The picture becomes even more illustrative if we take into account the export of minerals (another type of natural resources or commodities). The latter account for around 29% of total export value. In essence, if we add the two major Bolivian export products, we arrive at a significant 63% of total export value. That would mean that 63% of the total value Bolivia exports is generated by the selling of natural gas and minerals.
Furthermore, an interesting detail that further points to the commodities price fluctuation explanation is the following. If we consider the data for the two years in question, 2017 and 2018, it shows a marginal increase in exports from 8.3 to 9.0 bn. USD, and for imports, from 9.3 to 9.99 bn. USD. While this parallel increase in the volume of imports and exports might suggest improvement in economic conditions, i.e. that Bolivia is selling and buying more, the real reason behind it is the recent improvement in the international prices of minerals and natural gas. The rise in value from one year to the other and the, at the same time, persistent trade deficit condition underline the economy's dependency on natural gas and therefore, on its international price.
IBCE's data presents a list of countries with which Bolivia exchanges goods. That gives us a good idea with which countries Bolivia engages in trade and what type of goods is the country buying. Of all the countries conducting business with Bolivia, Brazil and Argentina remain the most important. The simple explanation for this is the fact that the two countries buy Bolivian gas. At the same time, a further look at the list reveals the importance of Asian countries, and in particular of China. For 2017 and 2018, the most important countries buying Bolivian goods include Brazil, Argentina and India, which together represent a significant portion of total buys, above 40%. Brazil and Argentina buy primarily natural gas, followed by gasoline and alcohol but also silver, aluminum, and derivatives of sodium, antimon, barium, as well as Brazil nuts, beans, mais, oregano, bananas, heart of palm, pineapple, and wood. India, instead, having only recently become a relevant partner, mainly has bought gold.
The types of exports reveal that aside from the importance of the hydrocarbons and mining sectors, the agricultural sector contributes significantly to the economy. In addition to exporting natural resources and agricultural products, Bolivia tries to export value-added products, such as packaged foods, processed derivative oil and gas products.
The list of countries from which Bolivia has bought more goods include China, Brazil and Argentina. These countries account approximately for almost 50% of the total bought goods. According to the data provided by IBCE, China sells machinery, buses, motorcycles, tires, trucks, pesticides, mobile telephones, cars, and other communication gadgets. Brazil and Argentina, in turn, sell Bolivia diesel, iron, machinery, buses, cars, shoes, plastic products, flour, malt, barley, fish and canned food. Other significant partners are: The US, which buys tin, silver, gold, jewelry, precious stones, Brazil nuts, quinoa, some petroleum-based oils, and sells perforation machinery, turbines, lubricants, diesel, cars, small airplanes, and machine parts; and South Korea, which buys zinc, silver, copper, plumb, aluminum, wood, coffee and Brazil nuts.
From the import side, we learn that while Brazil and Argentina remain the two most important trading partners, China has become even more relevant that the traditional partner, the US. From China, Bolivia buys capital goods, electronics and other products for the agriculture sector. A bit further down the list is South Korea, which buys mainly minerals and Brazil nuts.
From this data we see that Bolivia is still depending on the export of natural gas and minerals. However, we can also see the increase in importance of the agricultural sector and lagging behind the productive sector, exporting value-added products.