Bolivian President, Evo Morales, has revealed plans to nationalise the country's railway network. BMI believes that renovation of the country's rail freight infrastructure would lead to increased opportunities for trade for Bolivia and its neighbours.

Speaking on state radio station, Radio Patria Nueva, Morales said that in 2010 existing private railway lines would be transferred to the state in order to undergo renovation. A state railway company Empresa Boliviana de Ferrocarriles will be established to manage the railway, which is expected to transect the country and link with adjoining lines in Chile and Brazil. The project will involve connecting the country's eastern and western railway networks; the latter has fallen largely into disuse.

Poor Relations

Quality of Rail Infrastructure of Major Latin American States (1 = highest)

Source: World Economic Forum 2010 Global Competitiveness Report

On the potential cost of the project, Morales said: 'This is going to be an extremely bold investment, for we are talking about the renovation of an old route but also, about a new rail corridor linking East and West, essentially for the transportation of iron. We don't have an exact calculation of the project, but the interconnection [of the two railways] alone will cost US$2bn. This will be provided by state financing and credit from other sources.'

News of the project follows recent talks between Bolivian, Chilean and Brazilian governments to create an inter-oceanic freight railway, which would give both Bolivia and Brazil access to Chile's Pacific coast. So far, the dilapidated condition of Bolivia's railway network, has meant the creation of a road link was favourable between the three states, however, renovation of Bolivia's rail network may dissuade use of road haulage, which is a less cost effective form of freight transport. In December 2008, BMI reported that Chile had decided to re-establish a railway line to Bolivia. The 206km of railroad will be restored from the Port of Arica on the Chilean coast to the Bolivian border. The construction work is scheduled to be completed by September 2010 and will involve investment of around US$23mn.

Time to Diversify

Bolivia Exports by Region (US$mn)

Source: IMF Direction of Statistics

Bolivia's rail network is poorly developed by regional standards. The country has just over 3,500km of track, and the quality of the country's rail infrastructure is ranked 93/133 states in a survey by the World Economic Forum's '2010 Global Competitiveness Report'. This is after Paraguay, the lowest ranking of any major Latin American state.

The country's rail lines were sold in 1996, by Bolivia's previous administration, headed by President Gonzalo Sanchez de Loazada, to Chilean group, Cruz Blanca. The network was than divided up into west and east which were sold to US rail operator Genesee Wyoming and Chilean company Antofagasta Railway. Since then, the western section of the railway has fallen largely into disuse.

BMI believes renovation of the railway will help to diversify Bolivia's trade sector. A fast and reliable connection to Chile, in particular, would provide unprecedented access to Pacific coast ports which would increase the country's trade with Japan (Bolivia's third largest export market) as well as other growing Asian markets, such as China. Bolivia is currently reliant on neighbouring Brazil for some 60% of its total exports, leaving the country exposed to changes in the Brazilian economy and currency (the real). Meanwhile, the railway would also provide a shorter and more cost effective route for Brazilian exports of iron ore and other commodities to China, which are currently shipped eastwards to Asia via the Suez Canal.