The Economics of Tin Mining in Bolivia

8963 THE ECONOMICSOF Public Disclosure Authorized TIN MINING IN BOLIVIA Mahmood Ali Ayub FILECOPY Hideo Hashimoto Public Disclosure Authorized ~~. M WI Public Disclosure Authorized a.-~~~~~~~~~~~~~ . Public Disclosure Authorized A World Bank Publication I The Economics of Tin Mining in Bolivia Mahmood Al' Ayub Hideo Hashimoto The World Bank Washington, D.C., U.S.A. Copyright ©) 1985 by the International Bank for Reconstructionand Development/ The World Bank 1818 H Street, N. W., Washington, D.C. 20433 U.S.A All rights reserved Manufactured in the United States of America First Printing May 1985 The World Bank does not accept responsibility for the views expressed herein, which are those of the authors and should not be attributed to the World Bank or its affiliated organizations. The findings, interpretations, and conclusions are the rusults of research supported by the Bank; they do not necessarily represent official policy of the Bank. The designations employed, the presentation of material, and any maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concerning the delimitation of its boundaries or national affiliation. EDITOR Christine Houle FIGURES Pensri Kimpitak BOOK DESIGN Christine Houle COVER DESIGN George Parakamannil Library of Congress Cataloging in Publication Data Ayub, Mahmood Ali, 1948- The economics of tin mining in Bolivia. Bibliography: p. 1. Tin Industry--Bolivia. 2. Tin mines and mining- Bolivia. I. Hashimoto, Hideo, 1937- II. World Bank. III. Title. HD9539.T6B6166 1985 338.2'7453'0984 85-3200 ISBN 0-8213-0514-X Table of Contents Preface v Chapter 1 Introduction and Summary 3 Objectives of the Study 3 Survey for Data Collection 4 Structure of the Study 4 Summary and Conclusions 5 Chapter 2 Tin Mining in Bolivia: History and Characteristics 10 The Era of the "Tin Barons" 10 The Nationalization of Large Mines, 1952 13 The Triangular Plan for the Rehabilitation of COMIBOL 15 Recent Tin-Mining and Metallurgical Developments in Bolivia 18 Main Characteristics of Tin Mining in Bolivia 19 Chapter 3 The Impact of Tin Mining on the Bolivian Economy 24 Fiscal Results of Tin Revenues 28 Macroeconomic Linkages of Tin Mining 28 Chapter 4 Factors Determining Tin Prices and Competitiveness 30 The Demand Curve 30 The Marginal Production Cost Curve 30 Policy Factors 33 Institutional Factors 39 A Review of the World Tin Economv over the Past Decade 41 Chapter 5 Problems of COMIBOL 45 Major Problems of COMIBOL 45 Organizational and Management Problems 46 Problems Related to Manpower and Remuneration Policies 47 Lack of Investment 49 Excessive Taxation 49 Heavy Debt Burden 50 Some Recommendations for Changes in COMIBOL 50 Chapter 6 Tin Smelting in Bolivia 55 Main Objectives of Tin Smelting in Bolivia 56 Performance of ENAF 57 Chapter 7 Issues and Policies Related to Bolivian Mining Taxation 63 Drawbacks of the Present System 63 Alternatives for Mineral Tax Reform 65 .. Chapter 8 Prospects for Tin Mining in Bolivia 67 International Market Prospects 67 Domestic Considerations 70 Appendixes A. List of Bolivian Mining Companies Included in the Survey 72 B. Aggregated Sample Data for the Bolivian Tin-Mining Sector 73 C. Alternative Legal and Contractual Agreements for Mineral Development 74 D. Problems of La Palca Tin Volatilization Plant 77 E. Comparative Analysis of Terms and Conditions of Tin Concentrates Contracts 78 Statistical Appendix 79 Bibliography 105 iv Preface This study is the result of the authors' work with the Bolivian economy, in general, and with the tin mining sector of that country, in particular. While the focus of the study is on the Bolivian experience, the issues raised are typical of the dilemmas facing economic policymakers in many economies with heavy reliance on a single primary goods sector. In the preparation of this study, thie authiors have received invaluable advice and assistance from a number of individuals. The authors are especially indebted to Enrique Lerdau for his continued support of the study. They are grateful to Miss Margaret Joan Anstee, assistant secretary general, Department of Technical Cooperation for Development, United Nations, whose intimate knowl- edge of the economic history of Bolivia and whose continuing interest in that country contributed considerably. The authors also gratefully acknowledge the comments on a prior draft of Ronald Duncan, Andrew Freyman, Marianne Haug, Arnaldo Leon, Peter Scherer, and Roberto Zagha. The authors are, of course, responsible for all remaining shortcomings. An important source of background information for the present study was a detailed survey of Bolivia's public and private tin mining sectors. This was ably carried out by a team of Bolivian engineers and economists, including Teresa Alcazar, Gilberto Hurtado and Humberto Zannier. The team received considerable advice on data collection and analysis from RolandoJordan, chief economist of the Medium Mines Association of Bolivia. Successive drafts of the study were typed by Anna Maria Galindo de Paz, Adrienne Guerrero, Twain Revell, and Paula Earp. We are thankful to all of them. Mahmood Ali Ayub Hideo Hashimoto The Economics of Tin Mining in Bolivia CHAPTER 1 Introduction and Summary A caretaker of a Bolivianfinca (estate) once praised the natural resources of his country to a foreign diplomat. "The whole Cordillera of the Andes is a mass of gold and tin. Here where we stand, we are treading pure gold, and you will sleep tonight on a bed of gold." In relating the anecdote, the diplomat commented, "The man who was walking on gold had no shoes, and his bed was made of mud. In the words of an old philosopher, 'Rich country, poor people.' "' Nothing depicts more vividly the bittersweet saga of mining in Bolivia. From the advent of the Spaniards to Bolivia-then called Upper Peru-in the fourth decade of the sixteenth century, mining has been a mixed blessing for the country. Silver mining led to the elevation of Potosi to the rank of the most populous city in all America by the middle of the seventeenth century. But, the Imperial City was conspicuous because of its glaring contrasts of the big fortunes of the Spanish mine owners and the dire poverty of the indigenous Indian population. It was tin mining that acted as the engine of growth during much of the present century and led to the development of much of the infrastructure that currently exists. And yet there is evidence that at least some of this was achieved at the expense of greater improvements in the working conditions of the mine workers. In short, mining led not only to economic growth but also to social and political polarization of the society. Where tin mining interests-specifically, three major companies (Patiiio, Hochschild, and Aramayo), collectively referred to as the "Rosca"-heavily influenced successive governments of Bolivia during the first four decades of this century, there also now exists a trade union movement in the mining sector, which is probably one of the most powerful in Latin America. In such a charged environment, it is not surprising that few studies have examined the tin mining sector dispassionately from a strictly economic point of view. All too often, writing on the subject has been heavily tainted by the author's ideological outlook. Frequently, data have been distorted or stretched to justify preconceived notions. The present study is an attempt to analyze available data in as objective a manner as possible. Objectives of the Study This study has a number of objectives. First, it brings together reliable and consistent data on the sector. Despite the overwhelming importance of tin mining in Bolivia, no systematic efforts have been made, particularly in the public sector, to maintain reliable data. Those who have attempted to analyze Bolivian mining sector data are fully aware of the haphazard nature of the data and the frustrations of developing a consistent time series. Second, most discussions of mining in Bolivia have reviewed only a decade or two of developments. The present study (Chapter 2) analyzes tin mining activities over the past eighty years, for which the authors have compiled production and price data. This long-term view is interesting in assessing the lagged effect of major political upheavals and economic and technical factors, and in obtaining an idea about the future of tin mining in Bolivia. Third, on the basis of the collected information, an attempt has been made to answer such questions as: 3 How successful was the attempt at rehabilitating the nationalized Bolivian Mining Corporation (Corporaci6n Minera de Bolivia, COMIBOL) during the 1960s? What lessons can be drawn from that experience? What are the main problems of COMIBOL, and what can be done about them? Has tin smelting in Bolivia been a success? What is the macroeconomic impact of tin mining on the Bolivian economy? How competitive in tin production is Bolivia in relation to its Southeast Asian rivals? What are the prospects for Bolivia's tin industry? Survey for Data Collection An important component of this study was the estimation of the effect of a change in tin mining revenues on Bolivia's domestic aggregate demand. To achieve this, and to analyze the cost structure of Bolivian tin mining, a survey was carried out for thirteen private mining firms and an equal number of enterprises in the nationalized sector that are either sole producers of tin or produce tin along with other minerals. The sample covered no less than 90 percent of the country's total production of tin. For firms, both private and public, that produce other minerals as well, input costs were carefully prorated.

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