The manufacturing sector played a minor role in the economy, and virtually all of its activity was linked to the three major sectors of the economy: agriculture, hydrocarbons, and mining. Since 1952 manufacturing had contributed generally 15 percent of GDP, but the deep recession of the 1980s severely weakened the sector, making it contract by 35 percent from 1980 to 1987. In that same period, manufacturing's share of GDP dropped to about 10 percent, and its share of the labor force fell from 177,000 to 117,000, or about 7 percent of all workers. The sector focused primarily on the domestic market, but in 1987 nontraditional exports, those other than hydrocarbons, agriculture, or mining, amounted to over 18 percent of total exports. In the late 1980s, manufacturers continued to face onerous structural constraints: a small domestic market, tight credit policies, high transportation costs, a lack of infrastructure, insufficient skilled labor and managers, excessive contraband, low import tariffs, dependence on imported inputs, and the declining production of domestic inputs, such as agricultural goods, petroleum, and minerals. In addition, the NPE promoted greater export orientation and diversity for the sector, goals that few manufacturers were capable of reaching in 1985. Similarly, the NPE's policies of import liberalization and tight credit, low consumer demand, high utility costs, and a new VAT hurt most manufacturers accustomed to operating in a protectionist environment. From 1985 to 1987, more than 130 manufacturing firms collapsed, and the industry as a whole operated at only about half of its capacity.

Manufacturing grew at a pace of approximately 5 percent annually during the 1960s and 1970s, with slightly faster growth in the second decade. Until the 1970s, the government limited itself to the promotional and funding activities of the Bolivian Development Corporation, which was dissolved in 1985 in favor of regional development corporations in each department. In 1971, however, the Industrial Incentives Law granted varying import duty exceptions on capital and intermediate goods, accelerated depreciation allowances, deduction of indirect taxes, and a tenyear income exemption in the case of firms establishing themselves in the departments of Pando, Beni, Chuquisaca, and Tarija. To manage the law, the government created the National Investment Institute (Instituto Nacional de Inversiones) to screen and set priorities for investment. Investment in manufacturing increased as a result of these measures, including a surge in public sector spending from 15 percent of all manufacturing investment to 40 percent during the 1970s. The state's investment consisted of industrial plants in milk processing, cement, sugar, rubber, ceramics, metals, glass, petroleum, gas, and others, some of which were eventually sold to the private sector. The 1971 investment law was revised in 1981, but by 1986 both had been supplanted by the NPE's uniform import tariffs and tax reform. Government policy in the late 1980s focused on developing a new investment code to stimulate increased f 1000 foreign investment in export industries. Nevertheless, Bolivia's history of political instability, labor unrest, and structural bottlenecks made the task of luring foreign investors formidable.

The manufacturing industry consisted of nine subsectors--food, beverages, and tobacco textiles, garments, and leather goods chemicals and plastics timber, wood products, and furniture paper products nonmetallic minerals basic metal industries metal production, equipment, and machinery and other manufacturing. Many producers who were involved in manufacturing and related activities were classified as part of the informal sector (see Informal Sector , this ch.). The food, textile, and metal industries contributed over 80 percent of all manufacturing output and over half of the sector's labor force. Except for the manufacturing of hydrocarbons and minerals, there was little heavy industry. Except for agricultural processing, many manufacturers imported as much as 90 percent of their final product, making much of the sector more commercial than industrial. Many manufacturers ran only small artisan shops, and most employed fewer than ten workers.

The agricultural processing subsector consisted of milling wheat into flour, crushing oilseeds, refining sugar, blending coffee, milling cotton into textiles, canning fruits and vegetables, packing meat, and processing dairy products. Most agro-industries were located in Santa Cruz Department. Domestically made beverages, such as soft drinks, beer, and chicha, were also popular. A domestic cigarette and cigar industry also existed. In 1988 the government considered the possibility of legally exporting cocaine to the international pharmaceutical industry. The textile industry, another major subsector, had played a declining role in the economy since 1970 as mining and hydrocarbons occupied a more prominent place. The country's ten textile mills purchased local cotton and wool for their products, but the poor quality of garments, leather goods, and footwear, as well as the competition from smuggled goods, undermined growth.

Industry also produced a significant supply of local chemicals, plastics, medicines, industrial chemicals, gases, and insecticides. The subsector's output was expected to increase vigorously as the gas pipeline project with Brazil became operative and the manufacture of fertilizers and other petrochemicals increased. Although the cutting of timber accelerated and scores of small sawmills became active in the 1980s, the wood and furniture industry remained well under its potential. The wood industry was completely unregulated, and as the contraband wood trade thrived, Brazil benefited most from the increased felling of Bolivian trees. Timber also fed the country's paper industry, which consisted of several dozen mostly urban firms producing a limited product line of paper products, newsprint, and cardboard. The construction industry was primarily fed by the manufacturing of nonmetallic minerals, notably limestone, clays, and salts, all of which were found in abundant quantities. The metal industries fabricated a wide range of ferrous and nonferrous metal alloys, iron, steel, tubing, vehicles, some appliances, batteries, electrical transformers, sewing machines, farm equipment, bicycles, and transport equipment. In addition, Cofadena assembled automobiles in Santiváńez in Cochabamba Department, as part of an agreement with the Andean Common Market (ANCOM, also known as the Andean Pact see Foreign Relations , ch. 4).

The country's construction industry consisted of approximately 600 mostly small companies operating primarily in the cities of La Paz, Santa Cruz, Cochabamba, and Oruro. Construction activity soared in the 1960s and 1970s because of renewed investment in public works and a residential housing boom in the larger cities. Most Bolivians, however, continued to build their own homes by more traditional means. The deep recessio 80fn of thehe early 1980s and the extremely tight credit policies of the late 1980s slowed construction activity greatly. In the late 1980s, construction contributed an average 3 percent of GDP. As part of the reactivation policies of 1987, the government created the National Housing Fund (Fondo Nacional de Vivienda--Fonvi) to inject credit into the housing industry and to foster housing construction and home improvements.

With the exception of steel, the construction industry received most of its inputs from domestic industry: limestone, cement, wood products, and metal products. The cement industry in particular was very large, the four cement plants providing an installed cement capacity in 1989 of 700,000 tons per year. The three state-owned cement factories were run by their respective regional development corporations in Tarija, Cochabamba, and Chuquisaca departments and contributed 70 percent of total cement production. The only private company, the Bolivian Cement Company (Sociedad Boliviana de Cementos) in Viacha in La Paz Department provided the balance. In the late 1980s, about 400,000 tons per year of local limestone fed cement production.

Data as of December 1989