LOADING

Type to search

Andean Risks: Ecuador and Bolivia

Share
Regulatory risks and reforms that will impact business in Ecuador and Bolivia.

LBC SPECIAL
Exclusive Analysis 

In Ecuador, an anti-monopoly law is likely to be passed this year; banking, media and food companies will likely be the most affected.

On September 13, 2011, Congress started to discuss an anti-monopoly law that seeks to combat corporate monopolies. The government claims that the law will reduce the economic power of 15 large corporations that dominate the domestic market. The proposed legislation will impose fines ranging from 8-10 percent of a transgressing firm's annual earnings, and up to $150,000 for individuals such as large corporate shareholders. The law is likely to be passed by the ruling party controlled Congress. Ecuador, Bolivia and Paraguay are the only countries in Latin America without an anti-monopoly law.

Business groups have accused the government of drafting the law in vague terms to facilitate the weakening of President Correa's enemies, particularly those in banking and the media sectors. Among the most controversial aspects of the law is the fact that it prohibits bank shareholders, with a bank ownership stake above 6 percent, from having other business assets outside the banking sector. Owners with participation above such threshold will be required to sell their assets in other businesses before the July 2012 deadline. Failure to do this, will allow the state to seize their bank shares with the objective of auctioning them. The same procedure will be applied to firms in the media sector. It is likely that the government will also discretionally use the law to coerce the private sector into supporting government objectives.

The law has been sent to Congress and the ruling-party controlled Congress will have to finalise its approval before 29 September. Major bank owners include Fidel Egas from Banco Pichincha, Guillermo Lasso from Banco Guayaquil and the Ejuri group, owner of Banco del Austro. Firms owned by banks or bank shareholders in the country range from construction and real estate to entertainment and warehousing. Food companies are also likely to be affected as the draft law aims to tackle hoarding and price speculation. Firms in the textile, water, and dairy sectors will be targeted too, as the government has warned that these sectors are currently dominated by a handful of companies.

BOLIVIA: TAX AND CONTRACT RISKS

In Bolivia, a new mining law is likely to pass before the end of 2011, increasing tax and contractual risks for firms such as Glencore.

On August 31, 2011, the Vice-Minister of Mining Hector Cordova confirmed that the government had started working on a new mining law. This law, which is currently being reviewed by a Congressional commission, will increase the mining royalty from the current 4 percent average to as much as 7 percent for gold, 6 percent for silver and 5 percent for other minerals such as lead, tin and zinc. The government is also seeking to impose a profit repatriation levy of 12.5 percent and an extra 2 percent export tax. With these changes, Bolivia is likely to join countries in Latin America such as Chile and Peru, which have also increased taxation on mining to benefit from high prices and obtain a greater share of profits. Bolivia's mining industry is currently booming with the sector accounting about 9 percent of GDP. Mining exports accumulated $4.8 billion in the first half of 2011, accounting for nearly 50 percent of the country's total exports.

Besides raising taxes, the law also modifies the current contractual regime. All of Bolivia's mining concessions were suspended in December 2010 to comply with the country's 2009 Constitution, which calls for greater state control over the sector. Existing operators were granted 'Special Transitory Authority' back then which permitted them to continue operating until the new contracts are drawn up based on this upcoming mining law. The old concession system will likely be fully discarded. The companies that operate in Bolivia will probably have to adopt what, according to Vice-Minister Cordova's declarations, is likely to be a service model or a joint venture with the state-owned mining company Comibol.

President Morales' Movement for Socialism party MAS enjoys a majority in Congress. This is likely to assure the swift passage of the law after the completion of its final draft version. Vice-Minister Hector Cordova has expressed that the government expects its enactment at least as early as October 31, on the anniversary of the 1952 mining nationalisation, or before the end of 2011. The new taxation and contractual changes are likely to affect firms operating in Bolivia such as Glencore's Sinchi Wayra subsidiary (Swiss), which the government threatened to nationalize in April 2011. Other firms that are likely to be affected include Pan American Silver's San Vicente Mine (Canadian), Coeur d'Alene San Bartolome silver mine (US), and Sumitomo's San Cristobal mine (Japanese).

These risk analyses were provided by specialist intelligence company Exclusive Analysis.

 

 

To read this post, you must purchase a Latin Trade Business Intelligence Subscription.
Scroll to top of page