As Bolivians prepare to go to the polls on February 21st to vote on a constitutional referendum that will permit President Evo Morales to run for a third consecutive term, a scandal is rocking the country. The affair not only raises questions about the President’s character but is also a demonstration of the extent that Chinese companies have increased their presence in Bolivia—often engaging in less-than transparent procurement deals and largely without the attention of the U.S. and Bolivia’s neighbors.
By Dr. R. Evan Ellis
As Bolivians prepare to go to the polls on
February 21st to vote on a constitutional referendum that will permit President
Evo Morales to run for a third consecutive term, a scandal is rocking the
country. The affair not only raises questions about the President’s character
but is also a demonstration of the extent that Chinese companies have increased
their presence in Bolivia—often engaging in less-than transparent procurement
deals and largely without the attention of the U.S. and Bolivia’s neighbors.
The basic details behind the scandal have
been confirmed by President Morales himself. In 2007 or shortly before, the
President had a relationship with Gabriela Zapata, resulting in a child who
died shortly after birth. Zapata went on obtain a university education and a
law degree, and in 2013 was contracted by the Chinese company CAMC Engineering
which won an estimated $580 million in work from the Bolivian state, of which,
$366 million was awarded after Ms. Zapata was hired to represent the company.
What happened raises questions about
President Morales’ integrity, including whether his relationship with Ms.
Zapata began before she turned 18 and his denial of having been in touch with
her since 2007. That is until a photo appeared of him embracing her in 2015 at
the Carnival of Oruro. Adding insult to injury, he explained the discrepancy by
dismissing the mother of his child as someone who seemed only vaguely familiar
at the time among the many people who approached him at such public events.
The timing of the revelations regarding
President Morales and Ms. Zapata, just days before the referendum vote, is
likely no coincidence. Yet the scandal also highlights how Morales has placed
Chinese-funded infrastructure projects, contracted to PRC-based companies, at
the center of Bolivia’s national development strategy.
Even prior to assuming the Bolivian
presidency, Morales signaled his interest in a special relationship with China,
traveling to the PRC in January 2006, where he publicly declared himself to be
a great admirer of Chinese revolutionary leader Mao Zedong.
In the years that followed, due to political
instability, uncertain legal protection for companies, and the difficulties of
doing business in Bolivia, the Morales government had few successes in
attracting Chinese equity investment in sectors such as mining, petroleum or
agriculture, despite the country’s abundance of natural resources.
PRC-based companies did, however, make
enormous advances in selling to Bolivia Chinese goods and services, including
numerous public works projects financed by Chinese banks.
In the first 15 years of the current
millennium, according to the International Monetary Fund, China-Bolivia
bilateral trade expanded by a factor of six, from a mere $75.3 million in 2000,
to $2.25 billion in 2014. Yet, while other commodity-rich Latin American
countries were enjoying trade surpluses with the PRC, Bolivia’s $1.82 billion
in imports from China exceeded its exports to the PRC by more than 4:1.
In Bolivia’s commodity sectors, Chinese
commercial activity principally involved sales of goods and services on credit,
rather than equity investments by PRC-based firms. Notable examples included
the 2011 sale of $60 million in drilling equipment to YPFB, financed by China
Export-Import bank, a contract with the Chinese firm CITIC to explore for lithium
and other mineral salts near Coipasa, paying the Chinese firm Linyi Gelon New
Battery Materials Company to build a small plant making lithium batteries,
paying CAMC Engineering to build a facility for extracting and refining
potassium chloride, paying Henan Yuguang to build infrastructure in Oruro and
Potosí to refine and cast zinc, and a $50 million contract with the Chinese
firm Vicstar for a tin ore processing facility at the Huanuni mine in Potosi,
among other projects.
The crown jewel in hiring Chinese companies
to provide mining services, however, occurred in January 2016, when the
Bolivian government announced a $450 million contract to the Chinese firm
SinoSteel. The deal pays SinoSteel to build and administer facilities to
extract and process iron from the country’s massive El Mutún mineral deposit.
Previously, a contract to develop El Mutún had been awarded to the Indian
company Jindal, but had been put on hold because of a contract dispute.
During the Morales presidency, Chinese
companies also won significant transportation and electricity infrastructure
construction work from his government, with 11 of 49 Bolivian public works
outstanding in 2015 awarded to Chinese companies.
Thanks to Chinese financing of such projects,
by the end of 2015, the PRC was Bolivia’s largest creditor, with an outstanding
debt to Chinese banks of $533 million.
But even leaving aside the possibility of
nepotism and favoritism and the risk of mortgaging Bolivia’s revenues to
easy-to-obtain, Chinese-financed projects, an extraordinarily high number of
these projects have been also been plagued by delays and difficulties. Work was
suspended on an urban bridge being built by the Shenzen-based company Vicstar
in Cochabamba when it began sinking into the earth. A highway being built by
Sinohydro from Ivirgarzama to Ichilo was paralyzed by five work stoppages in 14
months. A $250 million contract for a railway and road connection between
Montero and Bulo Bulo included the award of two segments to Chinese companies:
China Railway Road and CAMC Engineering, of which both were rescinded when
neither company could complete the work on schedule.
In the hydroelectric sector, work by
Sinohydro on a $235 million contract to build the 124 MW San Jose hydroelectric
facility in Cochabamba was halted in January 2016 by a strike. Similarly, CAMC
Engineering became the target of protests when it ran out of money to pay truck
operators who had been working for it on the Misicuni hydroelectric facility.
Despite this record of difficulties, another
Chinese company, Sinohydro, appeared poised to win a contract to build the $1.3
billion, 600 MW Rositas hydroelectric complex on the Grande River in Santa
Cruz. Critics charged that the award was rigged when the government gave only
21 days for interested companies to bid, based on a design that had not even
been finished.
In manufacturing, as in the other sectors
previously mentioned, in lieu of investing in factories, as the Chinese have
done in the automotive, heavy equipment, and electronics sectors in Brazil and
Mexico, PRC-based companies have built facilities, of questionable utility for
the Bolivian state. Examples include an asphalt production plant in El Alto, a
paper mill in Villa Tunari in the Department of Chapare, and the San Buenaventura
sugar refinery in the Department of La Paz.
In telecommunications, in 2009, the Bolivian
state communications company Entel signed a $120 million contract with the
Chinese firm Huawei to provide service to 12,000 localities across the country.
Five years later, in 2014, Entel made the Chinese company ZTE the exclusive
supplier for building the new FTTx national broadband network.
In the space sector, the PRC built and
launched Bolivia’s first satellite, including the construction of its ground
infrastructure and the training of the personnel for the Bolivian Space Agency
formed to administer the satellite, financing 85% of the $302 million
collective costs of the work. Bolivia subsequently committed to contract the
PRC to build and launch a second satellite, the Bartolina Sisa, for $150
million.
In the military arena, Bolivia was one of the
first countries in the region to purchase Chinese equipment, buying 10,000
AK-47 assault rifles from the PRC during the period 1987-1996, as well as
purchasing man-portable HN-5 air defense missiles from the Chinese, although
the latter never functioned properly, and were eventually delivered to the
United States in November 2005 to be dismantled. More recently, the Bolivian
government has acquired Chinese trucks, busses and SUVs, as well as other
military equipment, yet reportedly almost none of the Chinese vehicles is
currently in service due to mechanical failures.
Undaunted by such experiences, during the
Morales presidency, Bolivia began acquiring Chinese military aircraft, leasing
two MA-60 mid-sized transports in 2007, and purchasing six K-8
fighter-interceptors in 2010. In 2014, Bolivia further acquired six Chinese
H-425 / Z-9 helicopters, and most recently expressed interest in buying radars
from the PRC.
If such projects presented a disturbing
pattern, the Bolivian government promised to take its engagement with the PRC
to an entirely new level with a $7.5 billion Chinese line of credit to fund a
series of 11 strategic development projects. The realization of such work by
Chinese companies would not only make the PRC the dominant player in Bolivian
development, but would more than double Bolivia’s national debt. Particularly
in the wake of the current scandal, the Morales strategy of using the PRC to
conduct and finance its national development raises multiple concerns.
Based on the track record of the Morales
government to date, it is not clear that the current regime is effective in
choosing and contracting for the public infrastructure projects that most
effectively promote national development. Nor is it certain that the regime can
work effectively with its PRC-based partners to deliver quality products on time,
without generating significant social unrest in the process.
Nor is it necessarily wise to more than
double Bolivia’s foreign debt at a time when the prices for the country’s
principal export commodities, metals, minerals, and gas, are at record lows,
with no relief in sight.
One mystery is how the PRC plans to guarantee
repayment of such risky business ventures. Chinese state officials and
businesses need only look at the painful collapse of their other principal
development partner in the region, Venezuela, to which China has lent more than
$56 billion.
Bolivian voters would do well to look beyond
the Zapata affair, but not overlook it. The current scandal is not just about
Evo Morales, who has done much during the past decade to make the long-marginalized
indigenous majority in Bolivia feel that they have a voice in the country’s
politics. It is about choosing a path in which transparency and strong
institutions ensure that the country most effectively leverages its resources
and the help available to it, whether from China, Germany, or the U.S., to
realize the legitimate dreams of national development and dignity in a
pluralistic society.
About The Author:
Dr. R. Evan Ellis - The author is Professor
of Latin American Studies at the U.S. Army War College Strategic Studies
Institute. The views expressed in this article are strictly his own. This
article is adapted from a more extensive study on Chinese activities in Bolivia
to be published in Spanish in a forthcoming issue of Air & Space Power
Journal en Español. The author thanks his research assistant, Jennifer Ng, for
her contributions to this work.
This article is republished from Latin America Goes Global's Website with author's permission.
All rights reserved by the Original Publisher.
