SANTA CRUZ BOLIVIA: SECOND CITY'S ECONOMY NOT

C O N F I D E N T I A L SECTION 01 OF 04 LA PAZ 001154

SIPDIS

E.O. 12958: DECL: 05/15/2018
TAGS: ECON PGOV AGR FAO FAS PREL PINR EAGR EAID BO
SUBJECT: SANTA CRUZ BOLIVIA: SECOND CITY'S ECONOMY NOT
QUITE SO DYNAMIC

REF: A. SAO PAULO 199

B. 07 LA PAZ 2104

C. LA PAZ 638

D. LA PAZ 670

E. LA PAZ 1006

Classified By: ADCM Mike Hammer for reasons 1.4 (b) and (d).

--------------
Comment
--------------


1. (SBU) Under the spotlight surrounding the autonomy
votes, the Department of Santa Cruz is often portrayed as
wealthy and white, and the movement for autonomy is
simplistically characterized as a struggle over resources.
While there is some truth in these generalizations, none of
them adequately capture what is happening in the department:
Santa Cruz is a poor state in a poorer nation. Moreover, its
economy is not as dynamic or as diverse as advertised; in
fact, economic growth in La Paz has been greater since 2001.
While control over resources is clearly an important part of
greater departmental autonomy, it is not the driving force --
differences with Evo Morales over the overall philosophical
approach to economic policy is much more important.
Economically speaking, Crucenos (as the people from Santa
Cruz are known) have a more market oriented vision for their
economy. They see the state-driven approach being pushed by
the Morales administration as both a threat to their relative
economic prosperity and their future prospects for growth.
End Summary.

--------------
A Poor State in a Poorer Country
--------------


2. (SBU) Bolivia is the poorest country in South America
and Santa Cruz is only slightly better off. In 2006,
Bolivians earned an average of US $1,152 per person. In
"wealthy" Santa Cruz, this figure came in slightly higher at
US $1,300 per person. Moreover, according to poverty
statistics from 2001, only 23 percent of Crucenos had their
basic needs met (the figure falls to 16 percent nationwide).
In Bolivia, 28 percent of the population is considered in
dire poverty. This figure falls to only 7 percent in Santa
Cruz, but still a full 38 percent of the department's
population lives in poverty (58 percent nationally). Santa
Cruz has provided better for its people, but only marginally.


3. (SBU) From a regional perspective, the Santa Cruz
economy looks less mighty than is often portrayed. The
neighboring Brazilian state of Matto Grosso do Sul provides
an interesting comparison (Ref. A). The two states share a
railway and a gas pipeline; they are roughly equivalent in
size (Santa Cruz is slightly larger); and they have similar
population densities (6.66 people per square km in Santa Cruz
against 6.4 in Matto Grosso do Sul). Yet, in 2005 people in
Matto Grosso do Sul earned US $3,675 per year (only 11th
place in Brazilian state rankings),almost three times the
figure in Santa Cruz. Agriculture plays an important part of
both states (21 percent in SC and 31 percent in MGS). Yet
Santa Cruz's 260,167 head of cattle is dwarfed by the 20
million head found in Matto Grosso do Sul. (Note: One point
of pride for Bolivia is the state of the railway line.
According to Jaime Valencia, General Manager of the Eastern
Railroad Company a subsidiary of Genesee & Wyoming, extensive
investment since privatization has left the Bolivian portion
of the line in better conditions than any other regional
railroad. It is the only portion of the envisioned
cross-continental railroad link through Brazil, Bolivia,
Argentina and Chile that would meet the proposed standards.
President Morales announced his intention to nationalize the
company in 2006, but has since backed off of the threat. End

LA PAZ 00001154 002 OF 004


note.)


4. (SBU) Santa Cruz takes great pride in the development of
its soy industry. Indeed, from the mid-1980s the sector has
grown from producing around US $20 million to an estimated
$388 million last year. Soy represents over 50 percent of
agricultural production in the department (followed by
sunflowers (11%) and corn (9%)) and there are now seven
crushing plants, with a crushing capacity of 5,250 tons per
day (t/day). Yet, in Santa Fe, Argentina the crushing
capacity is 71,000 t/day (78 percent of the Argentine
national capacity). Moreover, in Brazil there are 91 plants
which crush over 1000 t/day. Clearly, Santa Cruz is a small
time player, but with only one fourth of the soil apt for soy
production in use, locals see room to grow -- if permitted by
the national government.

-------------- --------------
Not So Dynamic, Not So Diversified, and Not So White
-------------- --------------


5. (SBU) The common perception in Bolivia (and in Santa
Cruz in particular) is that Santa Cruz is the engine of
growth for the whole economy, with growth rates that far
outpace those of the highland states. The fact is that in
2006 (the most current census),Santa Cruz had 25 percent of
the Bolivian population with only a modestly higher portion
of GDP (30 percent). From 2001 (the previous census) to
2006, the economy in Santa Cruz grew by 14 percent, well
below growth in La Paz, which grew by 22 percent. The
difference cannot be explained away by differences in
population growth either: the population in La Paz actually
grew at a slower rate, 14 percent (2,350,466 in 2001 to
2,672,800 in 2006) versus almost 22 percent in Santa Cruz
(2,029,471 in 2001 to 2,467,400 in 2006). These population
changes made the differences in GDP per capita growth over
the period even more stark, with growth up 4.9 percent in La
Paz over the period and GDP per capita actually falling by
5.2 percent in Santa Cruz.


6. (SBU) Why then the perception that Santa Cruz leads the
county in economic growth and prosperity? The answer can be
found when the time frame examined is expanded back to 1992
(when the next most recent census was taken). From 1992 to
2001, the economy in Santa Cruz grew by a whopping 59
percent, or 6.55 percent a year (La Paz meanwhile grew only
15 percent, or 1.66 percent annually). Moreover, internal
immigrants flooded into the region and the population grew by
almost 50 percent (La Paz grew by 24 percent). Even with the
dramatic rise in population (from 1,364,389 in 1992 to
2,029,471 in 2001),the economy in Santa Cruz was able to
increase per capita GDP by almost 7 percent (GDP per capita
fell by 6.5 percent in La Paz over the period). This was the
era of gas expansion: pipelines were built, wells were
drilled, and foreign investment poured into the region.
However, it is not the Santa Cruz of today, and much of the
push toward greater autonomy is likely linked to memories of
those halcyon days and the freedom to participate fully and
openly in the world economy.


7. (SBU) Today, the Santa Cruz economy depends heavily on
agriculture (21 percent) and services (53 percent). While
some see a modern economy with a diversified base, this is
really not the case. Manufacturing represents some 17
percent of output, but it is heavily skewed toward the
processing of agricultural products. Sixty-three percent of
manufacturing in Santa Cruz is dedicated towards food and
drink processing and an additional 23 percent of the total
comes from the refineries recently taken over by the state
from Petrobras. Only around nine percent of Santa Cruz
manufacturing could be (generously) considered light
manufacturing (apart from agricultural processing). In other
words, there isn't much of a manufacturing base which could

LA PAZ 00001154 003 OF 004


be built up to absorb more labor and/or serve as a foundation
on which to build a more sophisticated manufacturing sector.


8. (SBU) Not only is the common perception of the Santa Cruz
economy flawed, its racial mixture is also misconstrued.
According to an analysis done on the 2001 census data, there
are 447,955 indigenous residents in the department, or 22
percent of the total population. While this pales in
comparison to the over 65 percent in the three altiplano
departments (La Paz (60 percent),Oruro (61 percent),and
Potosi (81 percent),it does mean that Santa Cruz department
has the fourth largest indigenous population in Bolivia.
Moreover, a full 35 percent of rural Santa Cruz is
indigenous. (Note: Estimates of the indigenous population of
Bolivia range widely (up to 80 percent) depending on the
methods and timing of the surveys (Ref. B). End note.)


9. (SBU) As to the assertion that the agricultural sector is
dominated by a handful of white oligarchs, the reality is
considerably more complex. During the initial stages of the
ban on cooking oil exports (Ref. C,D,E),it was widely
reported that around 200,000 jobs depended upon the soy
industry. According to the Association of Oil Seed Producers
(ANAPO),there are 46,000 field workers employed in soy
production and some 25,000 dependent on the product's
transportation. Moreover, ANAPO claims that 77 percent of
soy producers farm on less than 50 hectares of land (or
10,780 of a total 14,000 producers),while only 2 percent
farm areas larger than 1,000 hectares. Taking a rough
estimate that the average small farm is 25 hectares, that
would mean that some 270,000 hectares are being farmed by
small landholders. Considering that around one million
hectares are dedicated to soy production, these rough
calculations would indicate that around one quarter of all
soy production comes from small farmers in Santa Cruz. Not
quite the image promulgated by the Morales administration.
Additionally, ANAPO claims that 31 percent of the soy crop is
produced by Brazilians, 22 percent by Mennonite communities,
6 percent by Japanese, and 35 percent by "Bolivian
nationals".

-------------- --------------
Not a Fight Over Resources, Rather Over Economic Direction
-------------- --------------


10. (SBU) Economically speaking, the struggle for greater
regional autonomy is frequently characterized as a fight for
control over natural resources. While true that asserting
local control over gas revenue is vitally important to the
department, a regional pride and a desire to pursue a
liberal, market oriented economic agenda outside of the
control and interference of the central government is behind
the push for autonomy.


11. (C) As discussed, Santa Cruz went through tremendous
growth in the 1990s and grew from a sleepy backwater to a
national leader. The economic policies that made this growth
possible are threatened by the statist policies of the
Morales administration. Crucenos see, and even acutely feel,
their opportunity to be a regional economic (and gas) hub
slipping through their fingers; the results of political
chaos and economic policies can be seen most tangibly in
their backyard. Only 20 percent of Bolivia's gas is produced
in Santa Cruz, but all of the international companies are
headquartered there. Moreover, in 2005 a full 69% of foreign
direct investment (FDI) for the department went into the
hydrocarbon sector. Therefore, perhaps no other region feels
the contraction of the industry more acutely than Santa Cruz
(in the department of Tarija, where the majority of gas is
produced, the impact of diminishing investment will not be
fully felt until actual production (and the taxes it
generates) begins to drop in the future). Indeed, FDI to the
department decreased 42 percent from 2004 to 2005, and has

LA PAZ 00001154 004 OF 004


likely fallen even further in the last two years. (Note:
Overall investment in the hydrocarbon sector has steadily
decreased this decade, from $442 million in 2000, to an
estimated $150 million in 2007. Investment in the sector
peaked in 1998 at $604 million. End note.)


12. (SBU) Santa Cruz also depends more heavily than the
rest of the country on trade. Around 25 percent of all
exports originate in the department and from 2000 to 2006,
exports doubled from less than $500 million to almost $1
billion. The recent ban on cooking oil exports only drove
home the belief that Santa Cruz needs protection from the
arbitrary actions of the central government, which threaten
their very livelihood. The ability to run your own business
and prosper from it is much more central to autonomy than
control over natural resources.


13. (SBU) Despite the importance of exports to Santa Cruz
(and the ability to export freely to the autonomy movement),
a closer look at export statistics surprisingly further
supports the argument that the department is not as dynamic
or diversified (as compared to the rest of the country) as is
commonly assumed. Removing hydrocarbons, exports from Santa
Cruz grew by only 43 percent from 2000 to 2006 ($423 million
to $605 million); in La Paz non-hydrocarbon exports almost
doubled over the same period (from $153 million to a not
insignificant $305 million (15 percent of total
non-hydrocarbon exports). Moreover, the bulk of these
exports came from light manufacturing, a sector nearly absent
in Santa Cruz and important in building an economy more
independent from natural resources. (Note: Many of these
industries depend on ATPDEA preferences. End note)

--------------
Comment
--------------


14. (C) Santa Cruz remains the single biggest departmental
economy; yet, it is not as rich, dynamic, or white as is
commonly assumed. However, despite what the numbers show,
there is a palpable feeling of prosperity and dynamism in the
city of Santa Cruz. Perhaps because of this, the numbers are
surprising. Drug proceeds may help explain some of the
discrepancy. Many in Santa Cruz like to compare the growth
in population and the economy to the Bolivian version of the
American dream. The challenges of absorbing such rapid
internal migration coupled with a national government in La
Paz advocating state control of the economy threaten to turn
the dream into a memory.
URS