News and Insights
- May 15, 2017
- by José Carlos Bernal Rivera
As reported in the excellent piece by Alejandro López Ortiz and Gustavo Fernandes in “A Year of Legal Developments for International Arbitration in Latin America”, Bolivia may have taken a step back in State arbitration with the passing of its new act on arbitration in 2015. The article remarks the limitations to arbitrability introduced by the new act, and the investment arbitration chapter of the act, which intends to provide a domestic arbitration framework for both national and foreign investors in Bolivia. The goals of these and other provisions of the new act are to keep arbitration proceedings (even investment arbitrations involving foreign investors) inside the country and subject to Bolivian law and its authorities.
So, how far does the new Bolivian arbitration act go in its intent to keep State arbitration inside the country? Aside from whether this mechanism will attract foreign investments, it is interesting to analyze the Bolivian proposal. Why is the government so disenchanted with international arbitration? How is the act’s investment arbitration chapter supposed to work? Are these limits to international arbitration a brand new feature of this act, or just a reflex of the policies implemented by the government since 2006? This brief article will try to dig deeper in the current situation of Bolivia, and the great lengths it is willing to go in order to avoid any more international arbitration cases involving the State or State entities in the future.
International arbitration boom in the last decade in Bolivia
In the last decade, a large amount of arbitration claims were filed against Bolivia as a result of investment disputes between foreign nationals and the State. The nationalizations carried out by the government of Mr. Evo Morales since he was elected to the Bolivian presidency in 2006, have, predictably, brought a large array of foreign investors to the negotiation table for reaching settlements with the government, and in several cases to arbitration instances. Bolivia promptly proceeded to withdraw from ICSID in 2007, becoming the first country in history to take this step.
Euro Telecom International reached a settlement agreement with Bolivia for approximately US$ 100 million for the nationalization of the telecom company ENTEL. Ashmore Energy International and Shell reached another settlement agreement with Bolivia in 2009 for US$ 241 million for the nationalization of pipeline infrastructure, and Pan American Energy settled with Bolivia for US$ 498 million in 2014 for the nationalization of the oil company “Chaco.”
Other companies were not able to reach settlements and opted for arbitration. Chilean company Quiborax was awarded US$ 48.6 million by an ICSID tribunal. Red Eléctrica of Spain was awarded US$ 65 million for the nationalization of its shares in the Bolivian company “TDE”. The Canadian company South American Silver is seeking US$ 385 million for the nationalization of the “Mallku Khota” mine in Bolivia, and Glencore has recently filed, in August 2016, a new arbitration claim against Bolivia for the nationalization of “Vinto” and “Colquiri” mines, for which the parties were initially negotiating a settlement agreement, which was unsuccessful. There are several other cases, but these are enough to illustrate the point.
It is not possible to say that Bolivia´s disenchantment with investment arbitration in international fora is based solely on the results of these cases. Bolivia’s policy rather fits well with the general discourse of the government regarding the recovery of natural resources from transnational companies. In 2009, the Bolivian Constitution was completely modified in order to implement the new policies of the government. One of the most remarkable changes was that of article 366, which states that all foreign companies operating within the oil and gas industry in Bolivia are bound to Bolivian sovereignty and authorities, and that “[n]o foreign jurisdiction or international arbitration will be accepted in any case […].” This is the first and only mention of the word “arbitration” in the Bolivian Constitution.
Against this background, the policies of the 2015 arbitration act are definitely not new. The ICSID withdrawal, the 2009 Constitution and, the repeal of key pieces of legislation (such as the repeal of the investment law which was in place since the nineties) were revealing factors regarding the shift in the investment policies of the government, and they all took place several years before the enactment of the new arbitration law of 2015. It is likely that the high amounts paid by the Bolivian government for the nationalizations were a contributing factor for the step back of Bolivia in State arbitration, although some people claim that the amounts paid actually reflect good results, if they compare to the amounts sought by the investors in the first place.
The “investment arbitration” chapter of the Bolivian act
This second part of the article analyzes the content of the new act in regards to investment arbitration in Bolivia and subject to Bolivian law. How would an investment arbitration case involving a foreign company be conducted in Bolivia?
One of the most important realizations about this chapter of the Bolivian act is that it might not be applicable to many of the foreign companies doing business in the country. Here is why. There are several restrictions to the participation of foreigners in some industries of the Bolivian economy (all in accordance to the general discourse of the current government, as explained in the first part of this article). The “strategic” sectors of the economy, which include some of the largest industries in Bolivia, such as oil, gas, mining and electricity, are reserved only for State-owned entities. Any participation of foreign companies in these industries can only be made in close connection with State-owned companies. This means that State-owned companies would either need to hire foreign companies to provide services (in which case the foreign companies would probably not be doing investments per se), or they would need to associate with the foreign companies in a sort of joint venture enterprise or “PPP.” The second scenario is less common in practice than the first.
It seems like the investment chapter of the Bolivian law has in mind the rather uncommon scenario of mixed enterprises in which both State and the foreign company associate. This chapter of the law envisages two scenarios: one dedicated to Bolivian investment and, one dedicated to mixed investment and foreign investment. The terms “Bolivian investment”, “mixed investment” and “foreign investment” are not defined in the arbitration act, but their exact definition can be gathered from the Investment Promotion Act of April, 2014.
If a foreign company and a Bolivian State-owned company associate to work in a strategic sector of the Bolivian economy, this would probably be considered a mixed investment (it cannot be a “foreign investment”, because of the restrictions applicable to strategic sectors of the economy). In such a case, internal disputes between the two partners might be considered investment disputes, which the parties could potentially submit to the investment arbitration procedure established under the new act. What would such an investment arbitration case look like?
The investment arbitration chapter of the new Bolivian act establishes several mandatory provisions that will be applied to investment cases, thus limiting the right of the parties to freely determine the characteristics of the procedure in their arbitration agreement. The law mandates that, before submitting to arbitration, the parties must first engage into a conciliation process. The lex arbitri will be Bolivia’s, and the arbitration would be deemed local, not international (though the audiences can take place abroad). The arbitral tribunal must necessarily be composed of three arbitrators, and the arbitration cannot be ex aequo et bono, it must be decided under Bolivian law.
By far, the most relevant restriction in the investment arbitration chapter is that of the lex arbitri. The act mandates that the procedural laws applicable to investment arbitration cases be Bolivian law, which means that any annulment claim sought against an arbitral award issued in an investment case against Bolivia, would be reviewed by Bolivian courts. This is, as you can imagine, far from ideal for a foreign company. If the seat of the arbitration is that of the country against which the company has filed the claim, then many of the most attractive features of the institution of arbitration as an ADR mechanism are diminished.
There seems to be several reasons that have pushed Bolivia to withdraw from ICSID and try to establish a local alternative structure for investment arbitration cases. It is also clear, however, that the “local option” in the new arbitration law does not really offer a completely neutral forum for investors, and this might be a potent deterrent for investment. Bolivia must consider the possibility that, by trying to keep investment arbitration cases inside the country, it might be keeping foreign investment outside of it altogether.
- Mar 13, 2017
- by José Carlos Bernal Rivera
Bolivia’s new policies regarding foreign investment and arbitration have not gone unnoticed by ITN in the past. The laws on investment promotion and on arbitration are two of the most notorious pieces of legislation resulting from the process of change initiated by the Bolivian government under President Evo Morales since 2006. These two laws, along with the law on state-owned companies, have been labelled by the Attorney General of Bolivia as the “New Investment Laws” of Bolivia, and reflect Bolivia’s public policy regarding investment protection and the participation of the private sector in the economy.
However, it is still hard to provide a clear and certain answer to one of the most important questions that these laws were meant to resolve: can Bolivian state-owned companies submit to international arbitration? Different answers can be drawn depending on the type of state-owned company, the transaction at hand and the specific industry. For this, we must make a careful reading of the three New Investment Laws altogether. However, even combining the three laws, the drafting of the norms on this topic is unclear and may be subject to different interpretations. This note tries to describe the current scenario in Bolivia.
1. Why are state-owned companies so important for Bolivian investment policy?
The structure of the Bolivian economy has undergone many changes under the Morales presidency. Before 2006, the key companies and public services in Bolivia were “mixed corporations,” with capital from both the state and foreign private companies, as a result of the privatization and capitalization measures implemented in the 1990s (Law 1554 of 1994). Since 2006, the government has implemented a policy to recapture natural resources, which led to a series of nationalizations and expropriations, and to the rise of many state-owned companies.
The state’s new role in the Bolivian economy is the reason why state-owned companies are now so important for investment policy. They have become protagonists in the most important industries of the Bolivian economy. As part of this new policy, the Bolivian Constitution was reformed in 2009, and the recapture of natural resources was one of the most important changes in the new Constitution. Article 309 of the Constitution provides that managing the property rights over natural resources and controlling the production and industrialization of such resources is one of the objectives of state-owned companies. The Constitution only mentions the word “arbitration” once, and it does so to provide that foreign companies performing activities in the oil and gas sector may not submit to international arbitration (Art. 366).
Under the Constitution, the state’s role in the economy is “to direct and control the strategic sectors of the economy” (Art. 316), such as oil and gas, mining, electricity and others. The result of this policy change is that strategic industries of the Bolivian economy are inaccessible to foreign investors, unless the investment is channelled through or made in collaboration with state-owned companies.
In addition, many smaller state-owned companies have entered non-strategic sectors of the economy and compete in them with the private sector. Among these companies are Papelbol (paper), Cartonbol (carton), Lacteosbol (milk products) and BOA (airline). It is reported that currently 63 state-owned companies, with varying degrees of state intervention, operate in Bolivia.
2. What do the New Investment Laws provide for state-owned companies?
Considering that foreign investment in Bolivia is intrinsically connected to the operation of state-owned companies, the importance of the question in this note is more evident. What norms are applicable to state-owned companies? In particular, can state-owned companies submit to arbitration with private companies investing in Bolivia? A close reading of the Arbitration Law (Law 708), the Law on State-Owned Companies (Law 466), and the Investment Promotion Law (Law 516) provides us with some clues, but not with definitive answers.
a. Laws on State-Owned Companies and on Investment Promotion
These two laws deal with arbitration only indirectly. The Law on State-Owned Companies—which predates the Arbitration Law—simply provides that disputes among the partners within state-owned companies (namely, between private companies and the state) will be subjected to specific norms to be established in the new arbitration law to be created.
However, it also develops important concepts. It distinguishes three kinds of state-owned companies: i) State Companies have 100 per cent of state capital; Mixed State Companies have more than 70 per cent of state capital; and iii) Mixed Companies have more than 50 per cent of state capital (Law 466, Art. 6).
The Investment Promotion Law takes a similar approach regarding dispute resolution. It mandates the publication of a new arbitration law, which “shall include specific regulations for dispute resolution regarding investments” (Law 516, Transitory Art 3.I) and must be framed in the “principles of equity, truthfulness, good faith, confidentiality, impartiality, neutrality, legality, celerity, economy and mutual acceptability” (Law 516, Transitory Art. 3.II). In line with this mandate, the arbitration law enacted later includes a separate section addressing investment dispute resolution and expanding the principles of law applicable to that specific section.
In another important feature, the Investment Promotion Law reinforces the provisions of the Constitution by providing that only subject to the rights granted by the state may private investors develop economic activities in strategic sectors (Law 516, Art. 6). It also defines the differences between Bolivian, Mixed and Foreign Investments. These terms are also used in the Arbitration Law enacted later.
b. Law on Arbitration
To arrive at the core part of the question, it is necessary to take a closer look at Law 708 on Conciliation and Arbitration.
The point of departure is the list of non-arbitrable matters (that is, matters expressly excluded by law from being subject to conciliation and arbitration). Among these, the law expressly excludes “property over natural resources,” “administrative contracts, with the exceptions set forth in the Law,” and “matters affecting the public order” (Law 708, Art. 4).
Therefore, administrative contracts cannot be subject to arbitration, with some unclear exceptions not expressly mentioned. State Companies may enter into administrative contracts, but also into commercial agreements, which, under this article, should not be reached by this restriction. Also, the ambiguity of the term “public order” provides ample room for discussion. Would any right of a state-owned company be considered non-arbitrable, as it affects public interests and thus would be considered “a matter affecting public order” within the meaning of the law?
What are the exceptions not expressly mentioned? The law seems to provide two possible answers. First, it provides that state entities and state-owned companies may initiate arbitration regarding disputes arising only from agreements entered into with foreign companies not domiciled in Bolivia (Law 708, Art. 6). Second, state-owned companies may include arbitration clauses in their administrative contracts, “while” (“en tanto” in Spanish) these companies migrate to the legal regime set forth on Law 466 on state-owned companies (Law 708, Transitory Art. 4).
Regarding these two points, it is important to note that Article 6 might be contrary to the constitutional provision that prohibits according foreign enterprises conditions more favourable than those accorded to Bolivian companies (Constitution, Art. 320). Why is it possible for foreign companies to submit to arbitration, while this option is not available for Bolivian companies? On the other hand, Transitory Article 4 also creates interpretation problems regarding the word “while” (“en tanto” in Spanish), because it is unclear whether arbitration is available to the companies that have already migrated to Law 466 or whether it is only available to companies that have not yet migrated to the new regime.
Finally, the Arbitration Law establishes a whole new section on “disputes with the state regarding investments” (Law 708, Title IV, Chapter II). In this section, the law relies heavily on the definitions of the other New Investment Laws, by establishing different rules for Bolivian Investments, on the one hand, and for Mixed and Foreign Investments, on the other. However, in both cases, the law provides that arbitration shall be domestic and have its seat in Bolivian territory, and that Bolivian law shall be the procedural law applicable to the arbitration (lex arbitri), thus barring the possibility of subjecting investment disputes to international arbitration facilities.
It is logical to assume that these provisions on investment are applicable to all kinds of investment made in Bolivia, including foreign direct investment. However, as a result of the constitutional provisions explained above and of the heavy presence of the state in so many industries in the Bolivian economy, it is likely that these provisions would have special importance for investments channelled through Mixed Companies or Mixed State Companies.
It is not easy to draw hard conclusions on inconclusive norms. I believe that the best way to summarize this note is from the perspective of the foreign investor. If the foreign investor participates in a strategic sector of the Bolivian economy (for example, oil and gas), international arbitration with the state seems to be completely barred by constitutional provisions. Contracts between foreign investors and state-owned companies regarding other industries may be submitted to arbitration, but only if the agreements are not administrative in essence, or provided that the barrier of “non-arbitrable” matters can be successfully avoided by applying one of the exceptions of the arbitration law. On the other hand, if a foreign investment takes place through a state-owned company, disputes between the investor and the state as partners of the company may be submitted to arbitration, but following the specific norms applicable to the different types of investments and of state-owned companies, in which case international arbitration is out of the question. Clear and conclusive jurisprudence will be very important to shed more light on these intricate rules.
- Mar 23, 2017
- by Jorge Inchauste | José Bernal
1. Overview of the market and the country
In the last couple of years, the Bolivian mergers and acquisitions market, which for a considerable amount of time was limited to very few deals principally structured abroad with effects in the country, has seen some significant developments that have revived the market and made the M&A practice relevant again.
Authorities and legislation
The legislation governing mergers is dispersed. In general terms, mergers of Bolivian corporations are mainly regulated by the Bolivian Commercial Code, which requires that Bolivian companies involved in a merger give notice to their creditors and shareholders, and allows them to object to the merger process.
In the case of Bolivian companies that have outstanding instruments issued in public securities markets, they must inform the markets and the Supervisory Authority of the Financial System (ASFI) of any relevant change regarding the company, including mergers, acquisitions and spin-offs.
There are also a number of specific regulations applicable to different regulated industries, as merger control is imposed on certain sectors and industries in Bolivia. As a result, regulations that pertain to mergers can be found in the Electricity Law, the Telecommunications Law, the Hydrocarbons Law, the Banks and Financial Institutions Law, the Securities Law and the Insurance Law. These specific regulations are administered and enforced by the supervisory and control authorities for each sector. Therefore, any merger within the electricity industry in Bolivia, for example, will have to be notified and sometimes approved by the Supervisory and Control Authority for Electricity prior to the merger taking place; to the extent the operator, subject to the merger, has instruments issued and traded in public markets, then it must also inform the Supervisory Authority of the Financial System (ASFI).
Foreign exchange rules and controls in Bolivia are minimal. Currently there are taxes on, but no restrictions to, the entry or exit of capital, or the remittal of dividends, interests and royalties for the transfer of technology or other commercial concepts. Foreign investments and loans into Bolivia, as well as payments to foreign investors, must be reported to the Bolivian Central Bank, but there are no prior approvals or restrictions to foreign investment.
In addition, there is freedom to hold and deal in foreign currencies, there are close-to-market exchange rates that can be easily and safely accessed through regulated exchange, and the law allows the remittal abroad of foreign currency with few restrictions. However, there is a growing public policy towards the “Bolivianization” of transactions in Bolivia. As a result, there is a Financial Transaction Tax on any operation with foreign currency involving Bolivian financial institutions. This tax has recently been raised to 0.20% from 0.15%, and it is expected to be increased again in the next years. In addition, there is a tax on the exchange of foreign currency, and there is an obligation to inform of the origin and destination of currency or account movements that exceed US$ 10,000.
Principal mechanics of acquisition
As to the principal mechanics of an acquisition at present, it is important to bear in mind that the number of publicly traded firms in Bolivia is minimal. Most companies are either limited liability partnerships or stock corporations, and are closely held. Furthermore, the structure of most corporations in Bolivia generally involves a principal who owns a majority of the corporation’s stock (unlike other countries in the world where dispersed ownership is common). For the purposes of this analysis, we are going to refer to the Bolivian corporation structure as a ‘concentrated ownership’ structure. In this structure, the dominant shareholder usually owns a sufficient amount of shares to allow him or her to appoint all directors of the board, or at least a majority of them. As a result, the possibility of hostile acquisitions of companies is minimal (or, at least, different in its essence) because acquisitions must generally be consented to and recommended by the majority shareholder of the target, and the concentrated structure leaves little room for hostile takeover attempts through proxy fights or tender offers.
The transfer of stock or share participations in corporations is generally unrestricted and straightforward, requiring only registration in the company books with no prior filing. Transfer of participation in limited liability partnerships is more cumbersome, as it requires that documentation evidencing the existence and legal representation of the acquirer be legalised in Bolivia and thereafter filed before the Registry of Commerce.
Mergers and acquisitions between large international companies that hold assets in Bolivia generally do not trigger regulatory scrutiny, unless they take place in a regulated sector. As a result – and unless the acquisition involves the merger of two Bolivian companies – most acquisitions can proceed without regulatory filings and approvals. In many cases, an acquisition is completed by acquiring interests in holding companies that may be several levels above the target with assets in Bolivia. This form of acquisition may be rapid and outside the scrutiny of certain regulators.
Further, joint ventures that do not result in a merger or change of ownership of the relevant regulated company typically do not fall under the scrutiny of merger control. However, joint ventures that involve regulated companies are subject to some review and could be opposed by the relevant regulator to the extent that they could be considered contrary to antitrust or competition policies.
Asset purchase deals, as opposite to stock purchase deals, are also common. This method avoids certain tax and labour liabilities in the underlying target. However, this ‘cherry picking’ – which requires adequate identification of the productive assets that are of interest – may take more time than a stock purchase and may involve a tax impact on the value of the assets being acquired.
Overview of market and key sectors
As mentioned before, the Bolivian M&A market has revived in the last few years. Bolivia is still a small market in comparison to most of its neighbours in Latin America, but the growth perspectives are encouraging.
So, why has the level of activity resurged during the last years? It is hard to ascribe the increased level of activity to a single factor. In all likelihood, it is the result of a series of developments and events in the economic, legal and political arenas. Among these several factors, one should include the continuous and sustained growth of Bolivian GDP during the last years, the enactment of a new investment promotion law, and the fast-paced development of the city of Santa Cruz. All these points are further developed below in this report.
It is also hard to point out specific key sectors of development. M&A transactions have ranged from mining companies to hospitality to telecoms and media. Nevertheless, it may be possible to single out the banking industry as a key sector for recent M&A activity, as this activity has surged from a specific event, the economic distress of certain smaller financial institutions called “mutuales” in Bolivia. This is also covered below.
Most M&A activity in Bolivia takes place in private transactions; public M&A transactions (i.e. through the Bolivian Stock Market) are rare, but there are some notable exceptions. In December of 2014, CIMSA (part of the Doria Medina family group) sold its controlling shares in the largest Bolivian cement company, Sociedad Boliviana de Cemento (SOBOCE), for US$ 300m, and listed the sale on the Bolivian Stock Exchange. The stock was acquired by the Peruvian company “Consorcio Cementero del Sur”, and this transaction is recorded as the largest in the history of the Bolivian Stock Exchange.
2. Significant deals and highlights
One of the most significant deals took place in the cement industry. Sociedad Boliviana de Cemento (SOBOCE) is the leading cement company in Bolivia, and one of the largest companies of the country. Samuel Doria Medina and his family were the controlling shareholders in this company. At the end of 2014 and beginning of 2015, Doria Medina sold his shares in the company to the Peruvian company “Consorcio Cementero del Sur”, which amounted to around 50% of the market capital of the company. The remaining shares were the subject of arbitration between Doria Medina, Consorcio Cementero del Sur, and the Mexican company Grupo Cementos de Chihuahua.
This transaction was made through the Bolivian Stock Exchange, and is recorded as the largest in the history of the Bolivian Stock Exchange.
Other important deals took place in the banking sector. The financial institution “Mutual La Paz” was undergoing economic distress during 2016 and, in May, the Bolivian comptroller of banking institutions (ASFI) intervened the bank, fearing that it would go into bankruptcy. There was also a general panic of a bank rush, as other financial entities of similar characteristics (mutuales) could also be under risk. As a result of this, the bank “Mercantil Santa Cruz” bought the client and deposits portfolio of the distressed Mutual La Paz.
In October of 2016, Mercantil Santa Cruz started a merger process with another financial entity, bank “Los Andes ProCredit”. The combined entities will have close to 20% of market share over the financial industry of Bolivia. This transaction was approved by the comptroller of financial institutions (ASFI) in December of 2016.
There were also many cases where the M&A activities of foreign giants have had effects on the companies and assets of those companies in Bolivia. In these cases, the acquisition is completed by acquiring interests in holding companies that may be several levels above the target with assets in Bolivia. For example, the mergers of American Airlines and US Airways, or the merger of AB InBev and SABMiller, had regulatory repercussions in Bolivia.
3. Key developments
Some important developments in Bolivian legislation have impacted, and will continue to propel changes, in the mergers and acquisitions market during the next couple of years. At least one of these legislative developments is still at the proposal stage, but it is expected to be enacted during 2017.
Investment promotion law and related norms
The first relevant development in the Bolivian legislation is the approval of a new investment promotion law on April 5, 2014 in order to establish a general legal framework for the promotion of investments in Bolivia. Up to that point, the framework for investment in Bolivia had been on hold, because the previous investment law of Bolivia, which was enacted in 1990, had been largely made inapplicable by the Bolivian constitution of 2009 and the political reforms of the government of Evo Morales. So, until 2014, the legal framework applicable to investments in Bolivia was uncertain.
The new law regulates not only foreign investments, but also domestic and public investments. The law follows the same political and economic principles set out in the Constitution and, as a result, it gives greater importance to Bolivian State participation – particularly with regard to the exploitation of natural resources. The law focuses on investments that: 1) promote economic and social growth; 2) generate employment; and 3) contribute to the eradication of poverty, and reduce inequality.
There are several sections of the new investment law that are unclear and are far from ideal for increasing the flow of investment to the country (for example, the regulation of international arbitration as a means of solving investment disputes is largely rejected by the law). Nevertheless, the issuance of the new investment law has provided a certain degree of certainty to the market, which was lacking since the previous law seemed to lose validity in 2009.
The most relevant aspect of the investment promotion law on this subject is that any acquisition or merger that involves a change in control or a foreign direct investment or loan to a Bolivian Company must now be registered before the Bolivian Central Bank. The Registration before the Bolivian Central Bank involves the periodic filing of certain forms and should be performed after the acquisition or merger has been completed.
Project of a new antitrust law
As of now, there are no regulations in Bolivia applicable to non-regulated industries. This means that, at this moment, an M&A transaction that does not involve a regulated industry would not have to comply with any particular requirements in order to be completed, in regard to merger control. However, there is a proposal for a “general” antitrust law, which will develop merger control regulations. This new law would apply to all non-regulated industries and is currently under consideration by the Bolivian senate. It is likely that this law will be enacted at some point during this year.
The content of the draft law is, unfortunately, very broad and unspecific. Most of the relevant sections of the law are reserved to a regulatory supreme decree to be issued later by the executive branch, and which will contain the rules of application of the law. Therefore, it is not possible at this point to analyse at large the impact that the law may have on mergers. In any case, it seems obvious that the implementation of the new merger control law will significantly impact the M&A practice, probably impose further requirements for the completion of a merger or acquisition, and even impose restrictions thereon.
Increased level of activity of the regulator
The third novelty is the increased level of activity of the enterprise supervision and regulation entity, Autoridad de Supervisión de Empresas (“AEMP”). This entity is in charge of regulating Bolivian companies in regard to corporate governance, restructuring, and antitrust. It is expected that AEMP will become a more active participant and enforcer of corporate governance and merger control regulations in the future (in the same way that it has gradually become a more active participant in the field of antitrust law during the past five years). Because of its scope of regulatory authority, this entity may play an important role in the Bolivian M&A market in the future.
It is hard to know, however, what is going to be the impact of the increasing level of activity of the regulator in the M&A market. It is logical to think that the increased level of regulation (by both the new law and the involvement of AEMP) will impose more obligations on the companies, and this could adversely affect the market. It is also obvious that the increased involvement of the regulator is due to the increased activity of the market, as a reaction to it. The effects of the involvement of the regulator will be seen in the long-run.
4. The years ahead
There are mixed signals regarding the M&A market for the following years. M&A thrives in stable and predictable environments. Although Bolivia has continued to be politically and economically stable and predictable over the past decade, its “socialist” economic orientation has, however, created somewhat of a hostile investment environment for certain industries. Such is the case with Hydrocarbons (where the State has taken a much larger role) and Mining (where transfers of ownership have been restricted), and which are traditionally the largest productive sectors of the Bolivian Economy. Notwithstanding the above, certain events and legislative alterations may change this scenario and positively impact the investment market, even in complicated and regulated sectors as those mentioned above.
In general terms, we consider that it is likely that the M&A market will continue to grow and expand in coming years. It is important to remark that the next presidential elections will take place in 2019, but the political panorama of Bolivia is certainly unclear, as president Evo Morales (currently serving his third term as president) has been denied the possibility of running again for office for a third term. Yet his political party has publicly announced that it is looking at ways to circumvent the constitutionally imposed restriction and present Mr. Morales for a re-re-election. So, a certain political friction is to be expected as the 2019 election comes closer.
On the other hand, a change in the government might be beneficial for M&A markets. The legal and economic panorama of the country under the left-leaning government of Evo Morales is not very favourable to investment and business development. Over the last decade, Bolivia has undergone a shift in economic orientation that has resulted in the “nationalisation” of over 15 companies since 2006. The great majority of these “nationalisations” affected former state-owned companies that were privatised during the 1990s as a form of recuperating the companies and assets that originally belonged to the Bolivian State. In this sense, the new investment promotion law is intended to bring clarity and certainty to the investors and the market, signalling that the nationalisations are over and that the new laws of the country are solid. It is still unclear whether the markets are going to agree with the signals sent by the Bolivian government, and will increase the flow of capital to the country.
The economic perspectives of the country also seem uncertain. The annual growth rate of Bolivian GDP was, for several years, higher than 5%, and it relied heavily on gas and minerals. The low prices of these commodities have hit the Bolivian economy, and the growth rate of GDP has started to slow down its pace. Notwithstanding, it continues to be one of the highest in Latin America, at around 4.4% according to official government reports.