Oil and Gas

By: Luis Carlos Jemio Ph.D.

Historically, Bolivia’s economic growth patterns have depended on export commodity sectors, namely minerals and hydrocarbons, which booms and collapses have determined the behavior of the economy as a whole. Past economic growth patterns have resulted in distorted economic structures, and did not promote better labor market results. In particular,  employment remains heavily concentrated in low-productivity activities, mostly in non-tradable sectors, with high poverty incidence, such as traditional agriculture and urban informal sectors.  The historical patterns of Bolivia’s economic growth have also produced large labor productivity gaps among different sectors of the economy, and within them. In Figure 1, sectors are grouped based on their labor intensity, differentiating them between labor intensive and non-labor intensive sectors.

Figure 1 shows that in 2014, 49.4% of GDP was concentrated in labor-intensive activities, while 50.6% in non labor-intensive activities. Employment, on the other hand, was largely concentrated on labor-intensive activities, which comprised 81.4% of total employment, while non labor-intensive activities only comprised 18.6% of the occupied population.  These GDP and labor structures imply large productivity gaps between the two sector groups, being the average productivity in non labor-intensive sectors 4.5 times larger than that in labor intensive sectors. The productivity gap in turn brought about labor income disparities, with workers employed in non labor-intensive activities earning 2.5 more than those in labor-intensive sectors.

The observed growth patterns of the Bolivian economy, and the economic and employment structures resulting thereafter, have been the outcome of policies implemented in the past. Independent of the ideological orientation of successive governments, policies invariably focussed on promoting growth in non labor-intensive commodity-exporting activities, such as mining and hydrocarbons. For instance, due to the various reforms implemented during the 1990s, FDI flows to those sectors in the 1999-2014 period, almost tripled FDI flows received by labor-intensive sectors.

The productivity and income gaps existing among activity sectors, resulting from Bolivia’s historic growth patterns, overlap with poverty incidence existing among workers of these two group categories. Figure 2 shows that poverty incidence of workers in labor-intensive sectors is 39.4%, while that for workers in non labor-intensive sectors is only is 15.5%.

Existing productivity and income gaps between these two sector groups are linked to various socio-economic dimensions that characterize the Bolivian labor force, including workers’ informality condition, educational level, gender, ethnicity, geographic location among the most important.

For instance, there are large educational differentials between workers in the two sector groups. In labor-intensive sectors the share of non-skilled workers in total employment is 62.4%, while this share is only 39% in non labor-intensive sectors. The later highlights the importance of education as a means to increase labor productivity and labor earnings and thus reduce poverty incidence.

Existing gaps are also linked to the prevalence of informality among workers belonging to the two sector groups. According to Figure 2, in 2004 77.3% of workers in non labor-intensive sectors were employed in informal activities, while 45.8% of workers employed in non labor-intensive sectors were informal. Informality is measured considering workers in firms with up to four workers (excluding professionals). In this regard, informality can explain productivity and income gaps between and within any particular activity sector. In many sectors, mostly labor-intensive ones, there are formal and informal activities coexisting, with former exhibiting larger productivity and income levels than the later.

Furthermore, the shares of vulnerable groups, such as women and indigenous people, among workers in the two sector groups show that vulnerable groups are mostly employed in labor-intensive sectors, where productivity and incomes are lower, and poverty incidence and informality are higher. The share of women employed in labor-intensive sectors is 44.9%, while this percentage is as low as 25% in non-labor intensive activities.  Likewise, share of indigenous people employed in labor-intensive sectors is 42.5%, while this percentage is only 20.7% for non labor-intensive activities.

From the above analysis, it is clear that Bolivia requires a change in its economic growth pattern to one, which would promote growth based on labor-intensive activities, but with higher productivity, probably in tradable sectors, such as the manufacturing sector. In 2014, manufacturing activities comprised 17.5% of GDP and only 9.3% of employment, being its labor productivity on average more than three times greater than that in other labor-intensive activities.

The development strategy and policies necessaries to promote the required change, at the macro, sectoral and micro levels, need to be carefully designed and implemented. They have to cover a wide range of areas. Appropriate policies  should cover: i) macroeconomic policies, including tax, exchange rate and monetary policies aimed at maintaining macroeconomic stability and promoting competitiveness; ii) trade policies and integration to the global economy; iii) FDI promotion policies to strategic sectors of the economy; iv) sectoral allocation of public investment, mainly to infrastructure and public services; v) setting-up strong and stable institutions to guarantee contract enforcement and the rule of law; vi) improving the overall business climate; vi) and investing in human capital through improving the access to and quality of education and health services.

By: Lykke E. Andersen*

During this week’s Climate Change Conference in La Paz, several participants expressed concern about Bolivia’s plans for oil drilling in National Parks following the recent Supreme Decree 2366 of 20 May 2015, which explicitly permits oil drilling in some protected areas in Bolivia in the name of poverty reduction and integral development for the people living in these areas.

In the conference session on Climate Change and Ecosystems, the panelists were asked if it was not contradictory to allow oil exploitation in national parks, and if anybody knew of any examples anywhere in the World where it had been done successfully. One of the panelists, Stanley Arguedas, Co-President of the Commission on Environmental Management of the International Union of Nature Conservation (CGE-IUCN) from Costa Rica, admitted that he did not personally know of any successful examples, but that, in theory, oil exploitation could be done in protected areas without compromising the objectives of the national park.

This tiny theoretical opening, coming from a top conservationist, is what I would like to explore in this blog.

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HAZ CLIC AQUÍ para leer en español.

China’s strong growth has been extensively reported and debated due to its significant impacts on the prices and volumes of commercial flows during the last few decades. The economic behavior of China is fundamental given that it has one of the highest Gross Domestic Products (GDP) in the world (second only to the United States) and that it has a population that makes up approximately 15 percent of the world’s total.

The 2012 ECLAC document ‘Panorama of the International Insertion of Latin America and the Caribbean’ contains information that allows an analysis of China’s influence on international commerce to be performed. The data are presented in the following table. Read More »

The Earth’s climate is changing and the vast majority of the scientific community as well as the public is now convinced that human activity is contributing significantly to this phenomenon. The underlying cause is an increase in the concentration of ‘greenhouse gases’ in the Earth’s atmosphere, such as carbon dioxide, which is released when fossil fuels are burnt; nitrous oxide from chemical fertilizers; and methane which is produced from activities like rice farming and livestock production. These gases trap heat in the atmosphere, leading to the ‘greenhouse effect’ – a rise in the average global temperature which leads to melting ice-caps and therefore rising sea-levels. Additionally, the change in the atmosphere makes the climate more unpredictable, increasing the incidence of ‘freak’ weather events such as hurricanes, floods and droughts (‘global weirding’). Regardless of what is causing the climate to change, preparations need to be made to cope with the consequences as they will impact on many aspects of life. One of these will be the world’s food supplies and food prices, since agricultural growing conditions will change in certain places, affecting the type and quantity of crops that can be grown. This in turn will affect people’s ability to buy and otherwise access food.

However, right now, the biggest impact of climate change on food supplies and food access does not come directly from the changes in climate. Instead, it comes from one of the ways in which we are trying to stop climate change: biofuels. ‘Undercovering Undernutrition Part II‘ showed that the growing demand for biofuels (mainly from western countries) means that in some areas biofuel crops are being grown preferentially over food crops due to their profitability. A 2010 report by the Institute for European Environmental Policy (IEEP) reported that European countries have chosen to meet the European Union (EU) legal requirement of including 10 percent of renewable energy in all transport fuels by 2020 by importing biofuels from places such as Indonesia, Brazil, and some African countries. One of the results, reported by The Guardian newspaper, is that the land acquired over the past decade for growing biofuel crops could have produced food for a billion people. This has led to increased food prices, leading to more people being unable to afford food and therefore going hungry. Read More »

By Adam Nelson and Allan Spessoto

“…Gross national product … counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage….Yet [it] does not allow for the health of our children, the quality of their education, or the joy of their play.”

Robert F. Kennedy Address, University of Kansas, Lawrence, Kansas, March 18, 1968

It has long been established that the way that national wealth is calculated is a poor measure of development. Gross and Net Domestic Products (GDP and NDP) positively count only the production of material goods, including weapons, cigarettes and handcuffs, but do not count some of the positive aspects of society like poetry, relationships, and music. Nor does it deduct ‘progress’ when the health of the environment, human beings or animals is negatively affected at the hand of pollution and toxic industries. Or give credit to ecosystems for the services they provide to nourish people and planet, like the rainforest’s capacity to purify air, stabilize soils and nutrients, curb global warming, and provide food, shelter, and cultural sustenance to millions of people. For many, such deductions and credits would mean having to put a dollar value on things in life that are just too sacred to be commoditized. For others, such a value is the first step to making them visible, and thus making them count, when they were taken for granted before. Throughout the month of November, Development Roast has shared with you a series of INESAD Live Research updates on how whole nations are rallying behind the call for green growth by trying to integrate the environment in national accounting calculations. Today, we start with the first of a two-part update on Latin America.

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“I’m not in this race to slow the rise of the oceans or to heal the planet.” Republican Presidential Candidate Governor Mitt Romney, an interview on “Meet the Press”, September, 2012.

This month, Development Roast has published several posts offering insights into different principles and practices of green accounting. After our overview of European experience with environmental accounting, we now turn to North America. Excluding Mexico (which will be discussed next week in the Latin America update), the two remaining countries show us quite different experiences with greening the national accounts. While Canada has shown to be an example of comprehensive implementation, the United States suspended its national project for environmental accounting in 1995 and hasn’t made large attempts to develop these accounts since. Read More »

To coincide with INESAD’s November Environmental Sustainability month, today’s Monday Graphics series is investigating pollution and sustainable innovations in Latin America.

The first infographic, entitled Pollution in Latin America, was compiled by Hispanically Speaking News using reports from the Economist Intelligence Unit, Yale and Columbia University, the World Health Organization (WHO), the World Bank and the Pan American Health Organization (PAHO), to show how pollution is affecting Latin America. In addition to illustrating the health hazards of pollution, such as the two million deaths a year attributed to it, countries like Nicaragua and Costa Rica are exemplified as countries heading towards environmental improvement. In fact, along with ranking fifth globally for its positive treatment of the environment, Costa Rica ranks first in a recent Happy Planet Index released by the New Economics Foundation, which measures how happy people are in relation to their ecological footprint. Read More »

Last night I tagged along to a dinner in Bangkok where I met a couple of executives of Thailand’s national energy company. Needless to say that, as someone with environmentalist proclivities, I was deeply interested in their ‘insider’ views of the industry, as I have learnt from experience that these can be revealing. Although, like taking a ring road bypass to dodge rush hour city traffic, all questions of the environmental impacts of such processes as fracking were skillfully avoided, several things struck me as the conversation turned to the company’s ambitions in the United States.

Fracking is a process of hydraulic fracturing that uses up to 300 tons of chemicals and injects large amounts of explosives and water to crack rock and release natural gases from deep wells. It presents an opportunity to get at previously untouchable gas and every oil and gas explorer wants a piece of the pie. However, according to the executives, the confidence with which the non-renewable industry operates is somewhat geographically determined. Read More »