Political instability becomes another obstacle for Bolivia's lithium projects

On June 26, a group of soldiers, led by then army commander Juan José Zúñiga, entered the seat of government in Bolivian capital La Paz in what was described by President Luis Arce as an attempted coup d'état and later by former president Evo Morales as a ‘self-coup’.

The events highlighted, once again, the political instability of the country that is also struggling with an economic crisis, which could lead to new protests and social unrest, as was seen in the past.

The incident also raised questions about the effects not only on the economy but on mining, particularly the Andean country's efforts to boost the lithium industry, taking advantage of high demand thanks to the energy transition.

BNamericas speaks with Sebastián Fernández de Soto, an analyst at global consulting firm Control Risks, about the economic, political and social effects of the events and what can be expected regarding Bolivia’s lithium pilot plant projects, given the political instability in the country.

BNamericas: What consequences could the attempted coup have on lithium projects?

Fernández de Soto: At the moment, we see few consequences for lithium projects, although on other occasions this would reduce international investment interest in the country due to low political stability. Investment conditions in Bolivia are very unfavorable for companies and there is high state intervention.

Chinese and Russian companies involved in lithium development will maintain their projects.

BNamericas: How do you see the progress of the pilot plant projects, with Russia and China, as well as the India one that would be installed this year?

Fernández de Soto: We see little progress at the moment in the extraction of lithium and the transfer of knowledge to develop an electric battery industry, as mentioned in contracts with certain companies.

BNamericas: Given that authorization from congress is required to sign contracts for industrial plants, what is the feasibility of pilot plants scaling to an industrial level?

Fernández de Soto: For now, apart from the technical and knowledge problems to scale to an industrial level, the political problem may present obstacles.

Political fragmentation in the national assembly would slow the progress of contracts with companies for the development of lithium projects.

At the moment, scaling at an industrial level seems very far away.

BNamericas: What political and economic effects will the attempted coup have for Bolivia?

Fernández de Soto: Political polarization will continue as former president Evo Morales will continue trying to win the presidency in 2025 and Arce will seek reelection for the Movement towards Socialism [MAS] party.

Indications that it was possibly a self-coup will increase political polarization in the coming months. Already the president of the senate, Andrónico Rodríguez, an ally of Morales, called a multiparty commission to investigate the actions of the army and the claim of [the now dismissed and detained] Juan José Zúñiga that Arce organized the coup.

Economic effects are few for now, but continued political instability will slow down necessary reforms to improve the economy, including approving credits from multilateral organizations, reforms to the hydrocarbons law and other necessary changes.

BNamericas: Which sectors could be most affected by political events? Would potential foreign interest in lithium also be affected?

Fernández de Soto: The scarce international investment does not seem to be affected for the most part. The companies that have a presence in Bolivia are already accustomed to political instability.

International investment remains primarily scarce due to investment conditions, in which the State maintains substantial controls. This is expected to continue with lithium in the country since the interest of international companies, although high in extracting lithium, remains subject to the poor conditions for investment.

BNamericas: Given the political instability, can new coup attempts, social unrest or other types of actions that complicate the economy be foreseen?

Fernández de Soto: The probability of a new coup is low since President Arce will increase his control over the armed forces – if it is confirmed that it was a coup. However, it is highly likely that we will see social upheaval in Bolivia in the coming months, given the electoral period and continued political polarization.

Blockades and other protest methods will also be common given the economic situation, such as the lack of dollars and fuel distribution problems.

BNamericas: Could these events, as well as the political tension and fragmentation, have effects on next year's elections and on Morales' intention to return to the presidency, or Arce's intention to seek reelection?

Fernández de Soto: The probability that either candidate will change their position by 2025 is low because both are seeking the presidency that year. Since the coup was controlled, both will continue seeking the MAS candidacy.